Global Journal of Management and Business Research, C: Finance, Volume 22 Issue 5

In the following pages, therefore, for the sake of mere clarity of communication, the two analyses - financial and income - will be dealt with in two separate paragraphs, in the complete and absolute awareness that the complex analysis tool considered herein envisages a systemic interpretation of each index/flow/aggregate output of the information process. In light of these considerations, and with the limitations illustrated above, it can state that it must implement corporate financial/equity analysis by determining and interpreting two sets of tools that necessarily complement each other. The calculation of a group of financial/equity ratios must be followed by the identification of cash flows, which will discuss in more detail in the next section. The ratios provide the static situation since they refer to a given instant. At the same time, the flows highlight functional elements of dynamic analysis, i.e. concerning a period, variously identified according to the information needs of company management. Financial analysis employing indices takes s. from the following consideration: income and expenditure, as well as assets of use and source, characterised by similar features, must be balanced. Based on this simple consideration, indicators can be identified that, synthetically, can provide interpretative elements regarding the financial/asset structure of the company. To avoid errors of "interpretative decoding" of the ratios, it is preferred not to subdivide them by "area". One often reads of the division between ratios analysing the short term, the long term, etc.. Such segmentation can, however, be dangerous as it limits the interpretation of the quotient. The writer, therefore, prefers to limit himself to listing the leading indicators of a financial/asset nature, illustrating, in an analytical manner, for each index, the formula, the method of determination, the managerial usefulness in the context of static financial/asset analysis, the logic of construction and the meaning of the quotient, and any reference parameters helpful in understanding the presence of imbalances between uses and sources. As noted above, each consideration reported on the indices must be supplemented and completed by a series of reflections on the dynamic financial situation, which, through the determination of particular flows, aims to deepen the balance/unbalance relations between income and expenditure referring to a given period. Therefore, the indicators set out below must be interpreted simultaneously as the analysis tools discussed in the next section. Only in this way can the study of the financial situation be said to be complete and exhaustive. The most commonly used financial ratios for understanding a company's financial situation are as follows: • Current ratio • quick ratio • - coverage ratio of long-term assets • - coverage ratio of long-term assets with internal sources of wealth • - ratios of composition of invested capital • - source composition ratios • - degree of asset depreciation • - ratio of wealth creation and maintenance capacity • - debt ratio • - ratio of intensity of short-term bank financing • - ratio of overall financing intensity • - ratio of gross income coverage capacity • - ratio of capacity of capital to create cash flow • - ratios of financial sustainability of growth • - ratio of average duration loans • - ratio of average duration of debts In conclusion, it should note a critical consideration concerning the correct interpretation of ratios. It must contextualise each of the observations below within the specific financial reporting under study. Therefore, it may happen, in particular, that it cannot share the meditation points reported in this paper concerning specific business realities. Reference will be made, for example, to the case in which a ratio turns out to be "off the mark". The light of the following pages shows that the situation is not balanced. However, it could happen that the value of the ratio is not significant due to the presence of an 'extraordinary' item in financial reporting. Let us assume, for example, that for the day of 31 December alone, there is an abnormal amount in the bank account, an amount that, after a couple of days, is duly invested in highly profitable forms of capital. The analysis of the financial reporting data, closed on 31 December, shows, as is evident, an abnormal situation and, consequently, any observations on the indices determined based on these accounting values must be contextualised and must take into account the particular condition that has arisen, accounting-wise, on the day the accounts were closed. One possibility to curb these situations could be calculating average values that reflect the problem, not on a specific day, but rather an 'average' across several accounting data. Some authors suggest always calculating the average between the values of the first day of the financial year and the accounting data on the last day of the administrative period. In reality, such a calculation does not solve the problem. To have a meaningful figure, one should identify an average that considers the monthly values. Such a determination, however, requires the preparation of a balance sheet (and, for some indices, a profit and loss) at the end of each month. In the writer's opinion, drawing up such a document is, if not impossible, extremely difficult. Therefore, the correct approach is the 'contextualised' interpretation of the indicators: those analysing the data 10 Global Journal of Management and Business Research Volume XXII Issue V Version I Year 2022 ( ) C © 2022 Global Journals Does the Formal Structure of the Cash Flow Statement have an Impact on the Understanding of the Data Contained in the Report Explaining the Company's Financial Dynamics?