Balance Sheet Based Financial Diagnosis - Working Capital Working Capital Needs, Net Worth And Net Treasuty

If we wish to understand the position of an economic entity in a sector/branch of an activity or to detect the malfunctions sighted in an activity we develop a diagnosis. A particularly delicate angle for a financial analyst is the assessment of the economic and financial indicators that were included in the diagnosis methodology. To make comparisons of the economic and financial statements and performances among firms in developed countries, there are specialized state or private institutions showing annually, average financial rates for activity sectors. From this information we can conclude which are the most profitable sectors, we can see the entity's position against its competition. Financial equilibrium can be defined as the state, which is characterized by the linking of the asset stocks (uses) with the resources (liabilities) and/or input cash flows with the output ones, both in time, as well as in terms of their size and volume. The entity’s economic situation at a certain moment in time, can be expressed by the working capital, the working capital needs, net worth and net treasury, fundamental indicators of financial stability. The selection and ranking of the analysis indicators is done considering several aspects of tradition, economic development, etc. The balance sheet is the basis of the financial statements which presents all the assets, liabilities and equity, at the end of the financial year as well as in case of merger, division or termination of service. When applying yield methods, we will calculate indicators based on historical data, we will draft forecasts based on them and we will prioritize profitability and return indicators. The financial diagnosis will have a secondary role in the case of property valuation methods.