Michalski G Paper Makes SSRN Top Ten List | Michalski, Grzegorz Marek, Financial Analysis in the Firm. A Value-Based Liquidity Framework. (May 12, 2011). Available at SSRN: http://ssrn.com/abstract=1839367

Michalski G Paper Makes SSRN Top Ten List | Michalski, Grzegorz Marek, Financial Analysis in the Firm. A Value-Based Liquidity Framework. (May 12, 2011). Available at SSRN: http://ssrn.com/abstract=1839367

Dear Grzegorz Marek Michalski:

Your paper, "FINANCIAL ANALYSIS IN THE FIRM. A VALUE-BASED LIQUIDITY FRAMEWORK.", was recently listed on SSRN’s Top Ten download list for ERN: Other Microeconomics: Search; Learning; Information Costs & Specific Knowledge; Expectation & Speculation (Topic). As of 06/23/2011, your paper has been downloaded 35 times. You may view the abstract and download statistics at http://ssrn.com/abstract=1839367.

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Financial Analysis in the Firm. A Value-Based Liquidity Framework.

Grzegorz Michalski


Wroclaw University of Economics

May 12, 2011

Abstract:
Counterpart rating is a complex and important process. It is performed by the company on a regular basis, and whether succeeding or whether our actions will end in failure largely depends on it. On the one hand, we are very concerned for obtaining customers. On the other hand, if we establish relationships with inappropriate factors, it may end badly. Contractors need to be assessed at the "start" (suppliers of materials and raw materials for production) and the end (the recipient of our products and services).

In assessing the contractor’s company, we often use the information that he wants us to provide. They are therefore usually dependent on the documents that define the contractor’s activities as an entrepreneur and in their form. Economic activity is, for economic reasons, carried out in a structured and ongoing activity of manufacturing, commercial, construction, services, and search, exploration and exploitation of natural resources.

In case the evaluated contractor does business – whatever its form, you can expect additional documents such as a certificate from the Tax Office about lack of overdue tax (if it is up-to-date, not older than e.g. 30 days, this informs us that the contractor complies its obligations to the Tax Office if you have any arrears to the budget, it can be concluded that this is a very suspicious case, and this should be taken as a warning signal), a certificate from Social Insurance Institution (ZUS) about lack of overdue insurance contributions (if it is up-to-date, no older than 30 days, has a similar meaning as a certificate from the Tax Office and our counterpart is some backlog in this respect, it can be concluded that this is a warning signal for the evaluation of the counterpart). With business using revenue and expense ledger, it is possible to ask for: company registry documents (REGON, NIP, the entry in the records of a business), a copy of the company agreement (on the basis of which you can sometimes find out that the person who signs with us some contract has no authority to do it), a copy of the PIT – 36, confirmed by the Tax Office for the last two years, PIT – 5, confirmed by the Tax Office from last month, a copy of the revenue and expense ledger from last month, a certificate from the Tax Office on derived income (not older than 30 days), authenticating that our contractor as an entity wishing to establish or continue the cooperation with us. If a contractor operates with a full accountancy, in addition to the above, we ask for a copy of the balance sheet F-02 for the last year, a copy of the declaration of the F-01 for the last year confirmed by the Tax Office, a copy of the CIT for the last year confirmed by the Tax Office. If your contractor is established on the basis of a lump sum, it is worth to supplement the documentation with a copy of PIT – 28 for the last two years, confirmed by the Tax Office, a certificate of costs incurred and revenue performance (contractor’s own statement), certificate from the Tax Office for income derived (not older than 30 days). If our contractor does business with the use of a tax card, in addition to the aforementioned we obtain a copy of the decision from the Tax Office to grant the amount of your tax for the current year, a statement of costs incurred and income performance (contractor’s own statement). Deciding on counterpart is not an easy task. In principle, any concluding on the counterpart bears the risk of errors in the assessment, even if it is carried out in accordance with all standards. Counterpart rating on the basis of information contained in the reports should be treated as one element of the whole puzzle. It must be considered as a basis for further, deeper analysis. This is because this tool is far from perfect. We can imagine the difficulty of this task if we compare the actual state of the literary work, part of which is displayed, and the rest has to be guessed. Although the work may be the most inspiring of those we know, on the basis of fragments visible to us, we cannot say this for sure. At the same time, it is possible for us to see parts, which promise more than the same piece is worth.

The purpose of this guide is to present the most useful – known to the author – tools that can be used to assess the counterpart. One should always remember that at no stage one could not fail to understand the implications of the intuition and managerial experience of the assessor. Counterpart rating is an art, not a craft. It cannot be made by a computer system without checks and the final decision of the experienced man in the industry.

The guide in the first part deals with the financial objective of the action and essential elements of shaping the financial image of the company’s counterpart. The purpose of this section is to show the main elements allowing the contractor to understand why we can behave in a certain way and how to interpret this behavior of the contractor and what the will be the reflection in the information we receive from the counterpart.

The second part deals with a discussion of the financial reports of the contractor and the main conclusions that one can try to draw from them. The third part is devoted to the indicator analysis of with respect to those indicators, which often can help to assess the contractor. Since the indicator assessment itself is not enough to conclude, the fourth and fifth section describes two cases of contractors (this list could be extended, of course), recipients and providers. Counterpart rating of the user using deferred payment is based also on how accepting even the weaker counterparty affects the value of the company if the assessment is related to an increase in sales. Counterpart-supplier rating is also based on its impact on the value of the evaluating unit firm. Both approaches take into account a number of information from outside of the financial statements resulting from the contractor’s bid.

Number of Pages in PDF File: 177

Keywords: liquidity management, financial analysis, corporate finance, financial management

JEL Classifications: M21, G32

Working Paper Series

Date posted: May 20, 2011

Suggested Citation

Michalski, Grzegorz Marek, Financial Analysis in the Firm. A Value-Based Liquidity Framework. (May 12, 2011). Available at SSRN: http://ssrn.com/abstract=1839367

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Contact Information

Grzegorz Marek Michalski (Contact Author)

Wroclaw University of Economics ( email )

Komandorska Street 118/120, p. Z-1, KFPiZW
Department of Corporate Finance & Value Management
Wroclaw , Lower Silesia 53-345
Poland
0048503452860 (Phone)
0048717181717 (Fax)

HOME PAGE: http://michalskig.ae.wroc.pl/

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