Financial leverage (financial leverage): definition, formula. Financial leverage

When comparing 2 enterprises with the same level of economic profitability (Profit from sales/all Assets), the difference in m/d between them may be the absence of loans in 1 of them, while the other actively attracts borrowed funds (PE/SC). That. the difference lies in the different level of return on equity obtained through a different structure financial sources. The difference in m/d between two levels of profitability is the level of the effect of financial leverage. EGF there is an increase in the net return on equity obtained as a result of using a loan, despite its payment.

EFR=(1-T)*(ER - St%)*ZK/SC, where T is the income tax rate (in shares), ER-eq. profitability (%), St% - average interest rate on the loan,

ER = Sales Profit/Total Assets. ER characterizes the investment attractiveness of an enterprise. There is no efficiency in using all capital, despite the fact that you still have to pay interest on the loan.

The first component of the EGF is called differential and characterizes the difference between the economic profitability of assets and the average calculated interest rate on borrowed funds (ER - SRSP).

The second component - financial leverage (financial activity ratio) - reflects the ratio between borrowed and equity funds (ZK/SK). The larger it is, the greater the financial risks.

The effect of financial leverage allows you to:

Justify financial risks and assess financial risks.

Rules arising from the EGF formula:

If new borrowing brings an increase in the level of EGF, then it is beneficial for the organization. It is recommended to carefully monitor the state of the differential: when increasing financial leverage, the bank tends to compensate for the increase in its own risk by increasing the loan price

The larger the differential (d), the less risk(accordingly, the smaller d, the greater the risk). In this case, the lender's risk is expressed by the value of the differential. If d>0, you can borrow if d<0, то высокие риск - не рекомендуется занимать, эффект от использования ЗК меньше суммы % за кредит; если d=0, то весь эффект от использования ЗК пойдет на уплату % за кредит.

EGF represents an important concept that, under certain conditions, allows one to assess the impact of debt on the profitability of an organization. Financial leverage is typical for situations where the structure of sources of capital formation contains obligations with a fixed interest rate. In this case, an effect similar to the use of operating leverage is formed, that is, profit after interest increases/declines at a faster rate than changes in the volume of output.

The advantage of fin. lever: capital borrowed by an organization at a fixed interest rate can be used in the process of activity in such a way that it will generate a higher profit than the interest paid. The difference accumulates as the organization's profit.

The effect of operating leverage affects the result before financial expenses and taxes are taken into account. EFR occurs when an organization is in debt or has a source of financing that entails the payment of constant amounts. It affects net income and thus profitability equity. EGF increases the impact of annual turnover on return on equity.

Total leverage effect = Operating leverage effect*Financial leverage effect.

With a high value of both levers, any small increase in the annual turnover of an organization will significantly affect the value of the return on its equity capital.

The effect of operating leverage is the presence of a relationship between changes in sales revenue and changes in profit. The strength of operating leverage is calculated as the quotient of sales revenue after reimbursement of variable costs by profit. The action of operating leverage generates entrepreneurial risk.

Financial leverage effect this is an indicator reflecting the change in the return on equity obtained through the use of borrowed funds and is calculated using the following formula:

Where,
DFL - effect of financial leverage, in percent;
t is the income tax rate, in relative terms;
ROA - return on assets (economic profitability based on EBIT) in%;

D - borrowed capital;
E - equity.

The effect of financial leverage is manifested in the difference between the cost of borrowed and allocated capital, which allows you to increase the return on equity and reduce financial risks.

The positive effect of financial leverage is based on the fact that the bank rate in a normal economic environment is lower than the return on investment. The negative effect (or the downside of financial leverage) occurs when the return on assets falls below the lending rate, which leads to accelerated generation of losses.

By the way, the generally accepted theory is that the US mortgage crisis was a manifestation of the negative effect of financial leverage. When the subprime mortgage lending program was launched, loan rates were low, but real estate prices were rising. Low-income segments of the population were involved in financial speculation, since practically the only way for them to repay the loan was to sell housing that had become more expensive. When housing prices went down and loan rates rose due to increasing risks (the lever began to generate losses rather than profits), the pyramid collapsed.

Components leverage effect are presented in the figure below:

As can be seen from the figure, the effect of financial leverage (DFL) is the product of two components, adjusted by the tax coefficient (1 - t), which shows to what extent the effect of financial leverage is manifested in connection with different levels of income tax.

One of the main components of the formula is the so-called financial leverage differential (Dif) or the difference between the company’s return on assets (economic profitability), calculated by EBIT, and the interest rate on borrowed capital:

Dif = ROA - r

Where,
r - interest rate on borrowed capital, in%;
ROA - return on assets (economic profitability based on EBIT) in%.

The financial leverage differential is the main condition that forms the growth of return on equity. To do this, it is necessary that economic profitability exceeds the interest rate of payments for using borrowed sources of financing, i.e. the financial leverage differential must be positive. If the differential becomes less than zero, then the effect of financial leverage will only act to the detriment of the organization.

The second component of the effect of financial leverage is the financial leverage ratio (financial leverage - FLS), which characterizes the strength of the impact of financial leverage and is defined as the ratio of debt capital (D) to equity capital (E):

Thus, the effect of financial leverage consists of the influence of two components: differential And lever arm.

The differential and the lever arm are closely interconnected. As long as the return on investment in assets exceeds the price of borrowed funds, i.e. the differential is positive, return on equity will grow faster the higher the debt-equity ratio. However, as the share of borrowed funds increases, their price increases, profits begin to decline, as a result, the return on assets also falls and, consequently, there is a threat of a negative differential.

According to economists, based on a study of empirical material from successful foreign companies, the optimal effect of financial leverage is within 30-50% of the level of economic return on assets (ROA) with a financial leverage of 0.67-0.54. In this case, an increase in return on equity is ensured that is not lower than the increase in return on investment in assets.

The effect of financial leverage contributes to the formation of a rational structure of the enterprise's sources of funds in order to finance the necessary investments and obtain the desired level of return on equity, at which the financial stability of the enterprise is not compromised.

Using the above formula, we will calculate the effect of financial leverage.

Indicators	Unit change	Magnitude
Equity	thousand rubles	45 879,5
Borrowed capital	thousand rubles	35 087,9
Total capital	thousand rubles	80 967,4
Operating profit	thousand rubles	23 478,1
Interest rate on borrowed capital	%	12,5
Amount of interest on borrowed capital	thousand rubles	4 386,0
Income tax rate	%	24,0
Taxable income	thousand rubles	19 092,1
Amount of income tax	thousand rubles	4 582,1
Net profit	thousand rubles	14 510,0
Return on equity	%	31,6%
Financial leverage effect (DFL)	%	9,6%

The calculation results presented in the table show that by attracting borrowed capital, the organization was able to increase return on equity by 9.6%.

Financial leverage characterizes the possibility of increasing return on equity and the risk of loss of financial stability. The higher the share of debt capital, the higher the sensitivity of net profit to changes in book profit. Thus, with additional borrowing, return on equity may increase, provided:

if ROA > i, then ROE > ROA and ΔROE = (ROA - i) * D/E

Therefore, it is advisable to borrow funds if the achieved return on assets, ROA, exceeds the interest rate for the loan, i. Then increasing the share of borrowed funds will increase the return on equity. However, it is necessary to monitor the differential (ROA - i), since with an increase in leverage (D/E), lenders tend to compensate for their risk by increasing the loan rate. The differential reflects the lender's risk: the higher it is, the lower the risk. The differential should not be negative, and the effect of financial leverage should optimally be equal to 30 - 50% of the return on assets, since the stronger the effect of financial leverage, the higher the financial risk of loan default, falling dividends and stock prices.

The level of associated risk characterizes the operational and financial leverage. Operational financial leverage Along with the positive effect of an increase in return on assets and equity as a result of increased sales volumes and the attraction of borrowed funds, it also reflects the risk of a decrease in profitability and losses.

Financial leverage characterizes the ratio of all assets to equity, and the effect of financial leverage is calculated accordingly by multiplying it by the economic profitability indicator, that is, it characterizes the return on equity (the ratio of profit to equity).

The effect of financial leverage is an increase in the profitability of equity capital obtained through the use of a loan, despite the payment of the latter.

An enterprise using only its own funds limits its profitability to approximately two-thirds of economic profitability.

РСС – net return on equity;

ER – economic profitability.

An enterprise using a loan increases or decreases the profitability of its own funds, depending on the ratio of its own and borrowed funds in liabilities and on the interest rate. Then the financial leverage effect (FLE) arises:

(3)

Let's consider the mechanism of financial leverage. The mechanism includes differential and leverage.

Differential is the difference between the economic return on assets and the average calculated interest rate (ASRP) on borrowed funds.

Due to taxation, unfortunately, only two thirds remain of the differential (1/3 is the profit tax rate).

Leverage of financial leverage – characterizes the strength of the influence of financial leverage.

(4)

Let's combine both components of the financial leverage effect and get:

(5)

(6)

Thus, the first way to calculate the level of financial leverage effect is:

(7)

The loan should lead to an increase in financial leverage. In the absence of such an increase, it is better not to take out a loan at all, or at least calculate the maximum maximum amount of loan that leads to growth.

If the loan rate is higher than the level of economic profitability of the tourism enterprise, then increasing the volume of production due to this loan will not lead to the repayment of the loan, but to the transformation of the enterprise’s activities from profitable to unprofitable.

Here we should highlight two important rules:

1. If new borrowing brings the enterprise an increase in the level of financial leverage effect, then such borrowing is profitable. But at the same time, it is necessary to monitor the state of the differential: when increasing the leverage of financial leverage, the banker is inclined to compensate for the increase in his risk by increasing the price of his “product” - a loan.

2. The lender’s risk is expressed by the value of the differential: the larger the differential, the lower the risk; the smaller the differential, the greater the risk.

You should not increase your financial leverage at any cost; you need to adjust it depending on the differential. The differential must not be negative. And the effect of financial leverage in world practice should be equal to 0.3 - 0.5 of the level of economic return on assets.

Financial leverage allows you to assess the impact of an enterprise's capital structure on profit. The calculation of this indicator is appropriate from the point of view of assessing past effectiveness and planning future financial activities enterprises.

Advantage rational use financial leverage is the ability to generate income from the use of capital borrowed at a fixed interest rate in investment activities that generate a higher interest rate than the one paid. In practice, the value of financial leverage is influenced by the field of activity of the enterprise, legal and credit restrictions, and so on. Too much high value financial leverage is dangerous for shareholders, as it involves a significant amount of risk.

Commercial risk means uncertainty in a possible result, the uncertainty of this result of activity. Let us remind you that risks are divided into two types: pure and speculative.

Financial risks are speculative risks. An investor, making a venture capital investment, knows in advance that only two types of results are possible for him: income or loss. A feature of financial risk is the likelihood of damage as a result of any operations in the financial, credit and exchange spheres, transactions with stock securities, that is, the risk that arises from the nature of these operations. Financial risks include credit risk, interest rate risk, currency risk, and the risk of lost financial profits.

The concept of financial risk is closely related to the category of financial leverage. Financial risk is the risk associated with a possible lack of funds to pay interest on long-term loans. An increase in financial leverage is accompanied by an increase in the degree of riskiness of a given enterprise. This is manifested in the fact that for two tourism enterprises having the same production volume, but different level financial leverage, the variation in net profit due to changes in production volume will be different - it will be greater for an enterprise that has a higher level of financial leverage.

The effect of financial leverage can also be interpreted as the change in net profit per each ordinary share (as a percentage) generated by a given change in the net result of operating an investment (also as a percentage). This perception of the effect of financial leverage is typical mainly for the American school of financial management.

Using this formula, they answer the question by how many percent the net profit for each ordinary share will change if the net result of operating the investment (profitability) changes by one percent.

After a series of transformations, you can go to the formula the following type:

Hence the conclusion: the higher the interest and the lower the profit, the more power financial leverage and the higher the financial risk.

When forming a rational structure of sources of funds, one must proceed from the following fact: find a ratio between borrowed and equity funds at which the value of the enterprise's shares will be the highest. This, in turn, becomes possible with a sufficiently high, but not excessive, effect of financial leverage. The level of debt is a market indicator for the investor of the well-being of the enterprise. Extremely high specific gravity borrowed funds in liabilities indicates an increased risk of bankruptcy. If a tourist enterprise prefers to make do with its own funds, then the risk of bankruptcy is limited, but investors, receiving relatively modest dividends, believe that the enterprise does not pursue the goal of maximizing profits, and begin to dump shares, reducing the market value of the enterprise.

There are two important rules:

1. If the net result of operating investments per share is small (and the differential of financial leverage is usually negative, the net return on equity and the level of dividends are reduced), then it is more profitable to increase own funds by issuing shares than to take out a loan: attracting borrowed funds funds are more expensive for the enterprise than raising its own funds. However, there may be difficulties in the initial public offering process.

2. If the net result of operating investments per share is large (and the differential of financial leverage is most often positive, the net return on equity and the level of dividends are increased), then it is more profitable to take out a loan than to increase equity: raising borrowed funds costs the enterprise cheaper than raising your own funds. Very important: it is necessary to control the power of influence of financial and operating leverage in case of their possible simultaneous increase.

Therefore, you should start by calculating net return on equity and net earnings per share.

(10)

1. The rate of increase in the enterprise’s turnover. Increased turnover growth rates also require increased financing. This is due to an increase in variable, and often fixed costs, an almost inevitable swelling of accounts receivable, as well as many other different reasons, including cost inflation. Therefore, during a steep rise in turnover, firms tend to rely not on internal, but on external financing with an emphasis on increasing the share of borrowed funds in it, since issue costs, costs of initial public offerings and subsequent dividend payments most often exceed the cost of debt instruments;

2. Stability of turnover dynamics. An enterprise with a stable turnover can afford a relatively larger share of borrowed funds in liabilities and more significant fixed costs;

3. Level and dynamics of profitability. It has been noted that the most profitable enterprises have a relatively low share of debt financing on average over a long period. The enterprise generates sufficient profits to finance development and pay dividends and costs more and more to a greater extent own funds;

4. Asset structure. If an enterprise has significant general purpose assets, which by their very nature can serve as collateral for loans, then increasing the share of borrowed funds in the liability structure is quite logical;

5. The severity of taxation. The higher the income tax, the lower tax benefits and the ability to use accelerated depreciation, all the more attractive is debt financing for an enterprise due to the attribution of at least part of the interest on the loan to the cost price;

6. Attitude of creditors to the enterprise. The play of supply and demand in the money and financial markets determines the average conditions for credit financing. But the specific conditions for providing this loan may deviate from the average depending on the financial and economic situation of the enterprise. Do bankers compete for the right to provide a loan to an enterprise, or do they have to beg money from lenders - that is the question. The real capabilities of the enterprise to form the desired structure of funds largely depend on the answer to it;

8. Acceptable degree of risk for enterprise managers. People at the helm may be more or less conservative in their determination of acceptable risk when making financial decisions;

9. Strategic target financial guidelines of the enterprise in the context of its actually achieved financial and economic position;

10. State of the short- and long-term capital market. In unfavorable conditions on the money and capital markets, one often has to simply submit to circumstances, postponing until better times the formation of a rational structure of sources of funds;

11. Financial flexibility of the enterprise.

Example.

Determining the amount of financial leverage of an enterprise’s economic activity using the example of the Rus Hotel. Let us determine the feasibility of the amount of the loan attracted. The structure of the enterprise's funds is presented in Table 1.

Table 1

Structure financial resources enterprises of the Rus Hotel

Indicator	Magnitude
Initial values
Hotel assets minus credit debt, million rubles.	100,00
Borrowed funds, million rubles.	40,00
Own funds, million rubles.	60,00
Net result of investment exploitation, million rubles.	9,80
Debt servicing costs, million rubles.	3,50
Calculated values
Economic profitability of own funds, %	9,80
Average calculated interest rate, %	8,75
Financial leverage differential excluding income tax, %	1,05
Financial leverage differential taking into account income tax, %	0,7
Leverage	0,67
Effect of financial leverage, %	0,47

Based on these data, we can draw the following conclusion: the Rus Hotel can take out loans, but the differential is close to zero. Minor changes to production process or rising interest rates may reverse the leverage effect. There may come a time when the differential becomes less than zero. Then the effect of financial leverage will act to the detriment of the hotel.

For any enterprise, the priority rule is that both own and borrowed funds must provide a return in the form of profit (income). The effect of financial leverage (leverage) characterizes the feasibility and efficiency of an enterprise’s use of borrowed funds as a source of financing economic activities.

Financial leverage effect lies in the fact that an enterprise, using borrowed funds, changes the net profitability of its own funds. This effect arises from the discrepancy between the return on assets (property) and the “price” of borrowed capital, i.e. average bank rate. At the same time, the enterprise must provide for such a return on assets that there will be enough funds to pay interest on the loan and pay income taxes.

It should be borne in mind that the average calculated interest rate does not coincide with the interest rate accepted under the terms of the loan agreement. The average settlement rate is determined by the formula:

SP = (FIK: amount of GS) X100,

JV – average calculated rate for a loan;

Fic – actual financial costs for all loans received for the billing period (amount of interest paid);

LC amount – the total amount of borrowed funds raised in the billing period.

The general formula for calculating the effect of financial leverage can be expressed:

EGF = (1 – Ns) X(Ra – SP) X(ZK: SK),

EGF – effect of financial leverage;

NS – profit tax rate in fractions of a unit;

Ra – return on assets;

JV - average calculated interest rate for a loan in%;

ZK – borrowed capital;

SK – own capital.

The first component of the effect is tax corrector (1 – Ns), shows to what extent the effect of financial leverage is manifested in connection with different levels of taxation. It does not depend on the activities of the enterprise, since the profit tax rate is approved by law.

In the process of managing financial leverage, a differentiated tax adjuster can be used in cases where:

By various types differentiated tax rates have been established for the activities of the enterprise;

for certain types of activities, enterprises use income tax benefits;

individual subsidiaries (branches) of the enterprise carry out their activities in free economic zones, both in their own country and abroad.

The second component of the effect is differential (Ra – SP), is the main factor shaping the positive value of the financial leverage effect. Condition: Ra > SP. The higher the positive value of the differential, the more significant, other things being equal, the value of the effect of financial leverage.

Due to the high dynamics of this indicator, it requires systematic monitoring in the management process. The dynamism of the differential is determined by a number of factors:

during a period of deterioration in market conditions financial market the cost of raising borrowed funds may increase sharply and exceed the level of accounting profit generated by the assets of the enterprise;

a decrease in financial stability, in the process of intensively attracting borrowed capital, leads to an increase in the risk of bankruptcy of the enterprise, which forces an increase in interest rates for loans, taking into account the premium for additional risk. The leverage differential can then be reduced to zero or even a negative value. As a result, return on equity will decrease because part of the profit it generates will be used to service the debt received at high interest rates;

during a period of deterioration in the situation on the commodity market, reduction in sales volume and accounting profit negative value differential can form even at stable interest rates due to a decrease in return on assets.

Thus, a negative differential leads to a decrease in the return on equity capital, which makes its use ineffective.

The third component of the effect is debt ratio or financial leverage (ZK: SK) . It is a multiplier that changes the positive or negative value of the differential. If the differential is positive, any increase in the debt ratio will lead to an even greater increase in return on equity. If the differential is negative, an increase in the debt ratio will lead to an even greater drop in return on equity.

So, with a stable differential, the debt ratio is the main factor influencing the return on equity capital, i.e. it generates financial risk. Similarly, with a constant debt ratio, a positive or negative differential generates both an increase in the amount and level of return on equity and the financial risk of loss.

By combining the three components of the effect (tax adjuster, differential and debt ratio), we obtain the value of the financial leverage effect. This calculation method allows the company to determine the safe amount of borrowed funds, that is, acceptable lending conditions.

To realize these favorable opportunities, it is necessary to establish the existence of a relationship and contradiction between the differential and the debt ratio. The fact is that with an increase in the volume of borrowed funds, the financial costs of servicing the debt increase, which, in turn, leads to a decrease in the positive value of the differential (with a constant return on equity capital).

From the above, we can do the following conclusions:

if new borrowing brings the enterprise an increase in the level of financial leverage effect, then it is beneficial for the enterprise. At the same time, it is necessary to control the state of the differential, since with an increase in the debt ratio, a commercial bank is forced to compensate for the increase in credit risk by increasing the “price” of borrowed funds;

The lender's risk is expressed by the value of the differential, because the higher the differential, the lower the bank's credit risk. Conversely, if the differential becomes less than zero, then the effect of leverage will act to the detriment of the enterprise, that is, there will be a deduction from the return on equity, and investors will not be willing to buy shares of the issuing company with a negative differential.

Thus, the debt of an enterprise to a commercial bank is neither good nor bad, but it is its financial risk. By attracting borrowed funds, an enterprise can more successfully fulfill its tasks if it invests them in highly profitable assets or real investment projects with a quick return on investment.

The main task for a financial manager is not to eliminate all risks, but to accept reasonable, pre-calculated risks, within the limits of a positive differential. This rule is also important for the bank, because a borrower with a negative differential creates distrust.

Financial leverage is a mechanism that a financial manager can master only if he has accurate information about the profitability of the enterprise’s assets. Otherwise, it is advisable for him to handle the debt ratio very carefully, weighing the consequences of new borrowings in the loan capital market.

The second way to calculate the effect of financial leverage can be considered as a percentage (index) change in net profit for each ordinary share, and the fluctuation in gross profit caused by this percentage change. In other words, the effect of financial leverage is determined by the following formula:

leverage = percentage change in net earnings per common share: percentage change in gross earnings per common share.

The lower the power of financial leverage, the lower the financial risk associated with a given enterprise. If borrowed funds are not involved in circulation, then the power of financial leverage is equal to 1.

The greater the power of financial leverage, the higher the company’s level of financial risk in this case:

for a commercial bank, the risk of non-repayment of the loan and interest on it increases;

for an investor, the risk of a reduction in dividends on his shares of the issuing enterprise increases with high level financial risk.

The second method of measuring the effect of financial leverage makes it possible to perform a related calculation of the strength of the impact of financial leverage and establish the cumulative (total) risk associated with the enterprise.

In conditions of inflation, If the debt and its interest are not indexed, the effect of financial leverage increases, since debt service and the debt itself are paid with already depreciated money. It follows that in an inflationary environment, even with a negative value of the financial leverage differential, the effect of the latter can be positive due to the non-indexation of debt obligations, which creates additional income from the use of borrowed funds and increases the amount of equity capital.

Based on data tables 11 calculate the effect of financial leverage.

The effect of financial leverage (E fr) is an indicator that determines how much the return on equity capital (R ck) increases due to the attraction of borrowed funds (BF) into the turnover of the enterprise. The effect of financial leverage occurs in cases where the economic return on capital is higher than the interest on the loan.

E fr = [R ik (1 – K n) – S pk ]

E fk – effect of financial leverage

Rik - return on invested capital before taxes (SP:SIK)

Kn - taxation coefficient (Staxes: SP)

From PC - the interest rate on the loan stipulated by the agreement

ZK - borrowed capital

SK - equity capital

Thus, the effect of financial leverage includes two components:

The difference between the return on invested capital after taxes and the interest rate for loans:

Rik (1 – Kn) - S pk

Leverage:

Positive Efr occurs if Rik (1 – Kn) – C pk > 0

If R IK (1 - K N) – C pk< 0, то создается отрицательный Э ФР (эффект «дубинки»), в результате чего происходит «проедание» собственного капитала и последствия могут быть резко негативными для предприятия. В этом случае рискованно увеличивать плечо финансового рычага, т.е. долю заемного капитала.

The effect of financial leverage depends on three factors:

a) the difference between the total return on invested capital after tax and the contract interest rate:

R IR (1-K N) – C pc = +, - … %

b) reduction of the interest rate adjusted for tax benefits (tax savings):

C pc = C pc (1 – K N) = + … %

c) financial leverage:

ZK: SC = … %

Based on the results of factor analysis, draw a conclusion about the degree of influence of each factor; Is it profitable for an enterprise in the current conditions to use borrowed funds in the turnover of the enterprise, and does this increase the return on equity capital? It should be borne in mind that by attracting borrowed funds, an enterprise can realize its goals faster and on a larger scale and takes an economically justified risk.

Liquidity analysis and solvency assessment.

The liquidity of a business entity is its ability to quickly repay its debt. The liquidity of a business entity can be quickly determined using the absolute liquidity ratio.

The solvency of an enterprise is the ability to timely repay its payment obligations with cash resources. Solvency analysis is necessary both for the enterprise (assessment and forecast of financial activities) and for external investors (banks), who, before issuing a loan, must verify the borrower’s creditworthiness. This also applies to those enterprises that want to enter into economic relations with each other.

The assessment of solvency is carried out on the basis of the liquidity characteristics of current assets, which is determined by the time required to transform them into cash. The less time it takes to collect a given asset, the higher its liquidity.

Balance sheet liquidity is the ability of an enterprise to convert assets into cash and pay off its payment obligations (the degree to which the enterprise’s debt obligations are covered by its assets, the period of conversion of which into cash corresponds to the period of repayment of payment obligations). Balance sheet liquidity depends on the degree to which the amount of available means of payment corresponds to the amount of short-term debt obligations. The solvency of the enterprise depends on the degree of balance sheet liquidity, and it may be solvent at the reporting date, but have unfavorable opportunities in the future.

Analysis of balance sheet liquidity consists of comparing assets (grouped by the degree of decreasing liquidity) with short-term liabilities (grouped by increasing maturity). Carry out the appropriate grouping in table 12.

Depending on the degree of liquidity, the assets of a business entity are distributed into the following groups:

A 1 – the most liquid assets

(cash and short-term financial investments);

A 2 – quickly realizable assets

(accounts receivable, VAT, other current assets);

A 3 – slowly selling assets

(inventories, excluding deferred expenses; long-term financial investments);

A 4 – difficult to sell assets

(intangible assets, fixed assets, construction in progress, other non-current assets, deferred expenses).

Balance sheet liabilities are grouped according to the degree of urgency of their payment:

P 1 – the most urgent liabilities

(accounts payable);

P 2 – short-term liabilities

(without accounts payable, i.e. borrowed funds, dividend payments, deferred income, reserves for future expenses, other short-term liabilities);

P 3 – long-term liabilities

(long-term borrowed funds and other long-term liabilities);

P 4 – permanent liabilities

(capital and reserves)

The balance is considered absolutely liquid if the following conditions are met:

A 1 ³P 1 A 3³P 3

A 2 ³P 2 A 4£P 4

The liquidity of a business entity can be quickly determined using the absolute liquidity ratio, which is the ratio of funds available for payments and settlements to short-term liabilities. This coefficient characterizes the ability of a business entity to mobilize funds to cover short-term debt. The higher this ratio, the more reliable the borrower.

Balance sheet structure assessment

and diagnostics of the risk of enterprise bankruptcy

Indicators for assessing the balance sheet structure are used as criteria for diagnosing bankruptcy risk. For the purpose of declaring agricultural organizations insolvent, the structure of the balance sheet for the last reporting period is analyzed ( table 13):

Current liquidity ratio (KTL);

Coefficient of provision with own working capital (K OSS);

Coefficient of restoration (loss) of solvency (K V (U) P).

The balance sheet structure is recognized as unsatisfactory, and the organization is insolvent, if one of the following conditions is present:

To TL at the end of the reporting period has a value of less than 2.

KOSOS at the end of the reporting period is less than 0.1.

On the balance sheet of an organization, the current liquidity ratio (KTL) is determined as the ratio of the actual value of the assets held by the enterprise (organization) working capital in the form of inventories, finished products, cash, accounts receivable and other current assets (section II of the balance sheet asset) (TA) to the most urgent obligations of the enterprise in the form of short-term bank loans, short-term loans and accounts payable (TP):

K 1 = Current Assets (without deferred expenses): Current Liabilities (without deferred income and reserves for future expenses and payments), where

TA – total for section II “Current assets”;

TP – total for Section V “Short-term liabilities”

The coefficient of provision with own working capital (K OSS) is determined:

K 2 = Availability of own sources (III P - I A): Amount of working capital (II A), where

III P p. 490 – total for section III “Capital and reserves”;

I A page 190 – total for section I “Non-current assets”;

II A page 290 – total for section II “Current assets”;

If the current liquidity ratio and the working capital ratio (at least one) are below standard values, then the balance sheet structure is assessed as unsatisfactory and then the solvency recovery ratio is calculated for a period of 6 months.

If both ratios meet or exceed the standard level: current liquidity ratio ≥ 2 and working capital ratio ≥ 0.1, then the balance sheet structure is assessed as satisfactory and then the loss of solvency ratio is calculated for a period of 3 months.

The coefficient of restoration (loss) of solvency (K V (U) P) is determined taking into account current liquidity ratios calculated based on data at the beginning and end of the year:

KZ = [To the end of the year + (U: T) (To the end of the year – To the beginning of the year)]: To standard. , Where

By the end of the year - the actual value of the current liquidity ratio, calculated from the balance sheet at the end of the year;

K tl beginning of the year - the value of the current liquidity ratio calculated from the balance sheet at the beginning of the year;

To standard – standard value equal to 2;

T – reporting period equal to 12 months;

U – period of restoration of solvency equal to 6 months. (loss of solvency – 3 months).

A loss of solvency coefficient that takes a value of less than 1 indicates that the organization will soon lose its solvency. If the coefficient of loss of solvency is greater than 1, then there is no threat of bankruptcy in the next 3 months.

Conclusions about recognizing the balance sheet structure as unsatisfactory and the enterprise as insolvent are made when the balance sheet structure is negative and there is no real opportunity for it to restore its solvency.

In the process of subsequent analysis, ways to improve the structure of the enterprise's balance sheet and its solvency should be studied.

First of all, you should study the dynamics of the balance sheet currency. An absolute decrease in the balance sheet currency indicates a reduction in the enterprise's economic turnover, which is one of the reasons for its insolvency.

Establishing the fact of curtailment of economic activity requires a thorough analysis of its reasons. Such reasons may be a reduction in effective demand for the products and services of a given enterprise, limited access to raw materials markets, the gradual inclusion of subsidiaries into active economic turnover at the expense of the parent company, etc.

Depending on the circumstances that caused the reduction in the economic turnover of the enterprise, various ways to bring it out of the state of insolvency may be recommended.

When increasing the balance sheet currency for the reporting period, one should take into account the impact of the revaluation of funds, the rise in price of inventories and finished products. Without this, it is difficult to conclude whether the increase in the balance sheet currency is a consequence of the expansion of the enterprise’s economic activities or a consequence of inflationary processes.

If an enterprise expands its activities, then the reasons for its insolvency should be sought in the irrational use of profits, diversion of funds into accounts receivable, freezing of funds in excess production reserves, errors in determining pricing policy etc.

Study of the structure of the balance sheet liabilities allows us to establish one of the possible reasons for the insolvency of an enterprise - too high a share of borrowed funds in the sources of financing economic activities. The tendency to increase the share of borrowed funds, on the one hand, indicates an increase in the financial stability of the enterprise and an increase in the degree of its financial risk, and on the other hand, an active redistribution of income in favor of the borrower enterprise in conditions of inflation.

The assets of the enterprise and their structure are studied both from the point of view of their participation in production and from the point of view of their liquidity. The change in the structure of assets in favor of increasing working capital indicates:

on the formation of a more mobile asset structure that will help accelerate the turnover of enterprise funds;

on the diversion of part of current assets to lending to buyers, subsidiaries and other debtors, which indicates actual immobilization working capital from the production process;

on the winding down of the production base;

on the delayed adjustment of the value of fixed assets in conditions of inflation.

If there are long-term and short-term financial investments, it is necessary to assess their effectiveness and the liquidity of the securities in the enterprise’s portfolio.

Absolute and relative growth of current assets may indicate not only the expansion of production or the impact of the inflation factor, but also a slowdown in capital turnover, which creates a need to increase its mass. Therefore, it is necessary to study the indicators of working capital turnover in general and at individual stages of the circulation.

When studying the structure of inventories and costs, it is necessary to identify trends in changes in inventories, work in progress, finished products and goods.

An increase in the share of industrial inventories may be a consequence of:

increasing the production capacity of the enterprise;

desire to protect funds from depreciation in conditions of inflation;

an irrationally chosen business strategy, as a result of which a significant part of the working capital is frozen in inventories, the liquidity of which may be low.

When studying the structure of current assets, much attention is paid to the state of settlements with debtors. The high growth rate of accounts receivable indicates that this enterprise is actively using the strategy of commodity loans for consumers of its products. By lending to them, the company actually shares part of its income with them. At the same time, if payments for products are delayed, the enterprise is forced to take out loans to support its activities, increasing its own financial obligations to creditors. Therefore, the main task of retrospective analysis of receivables is to assess their liquidity, i.e. repayment of debts to the enterprise, for which it is necessary to decipher it indicating information about each debtor, the amount of debt, how long ago it was formed and the expected repayment period. It is also necessary to evaluate the rate of capital turnover in accounts receivable and cash, comparing it with the rate of inflation.

A necessary element of analyzing the financial condition of insolvent enterprises is the study of financial performance and the use of profits. If the enterprise is unprofitable, then this indicates the absence of a source of replenishment of its own funds and the “eating away” of capital. The ratio of the amount of equity capital to the amount of losses of the enterprise shows the rate at which it is being consumed.

If a company makes a profit and is insolvent, it is necessary to analyze the use of profits. It is also necessary to study the enterprise’s capabilities to increase the amount of profit by increasing production volumes and sales of products, reducing its cost, improving quality and competitiveness. Analysis of the performance results of competing enterprises can provide great assistance in identifying these reserves.

One of the reasons for the insolvency of business entities is the high level of taxation, therefore, during the analysis, it is advisable to calculate the tax burden of the enterprise.

A decrease in the amount of equity capital can also occur due to the negative effect of financial leverage, when the profit received from the use of borrowed funds is less than the amount of financial costs for servicing the debt.

Based on the results of the analysis, specific measures should be taken to improve the balance sheet structure and financial condition of insolvent business entities.