Explanation of the essence of the indicator of concentration of borrowed capital
This indicator indicates the leverage level of the company. Leverage means use financial instruments or debt capital in order to increase the potential return on investment. In a company in which the amount of borrowed capital is significantly higher than equity, the level of leverage is high. In turn, this phenomenon indicates high level financial risks. It is worth noting that the attraction of borrowed capital allows you to ensure the growth of the company. Therefore, a significant part of the business is stable in terms of the use of borrowed funds.
The calculation of the concentration of borrowed capital is made by dividing the company's current and long-term liabilities by the amount of assets. This indicator shows how much of a company's assets are financed by liabilities. The indicator belongs to the group of indicators of financial stability.
Standard value of the indicator:
The normative value is considered to be within 0.4 - 0.6. However, the value of the indicator varies considerably, depending on the industry. If a cash flow during fiscal year changes significantly (for example, due to a seasonal factor), then the concentration of borrowed capital is low. If the company's share of borrowed funds in the amount of assets is higher than that of competitors, then this may lead to an increase in the cost of raising funds.
If the value of the indicator is higher, then the level of financial risks is also high. If the value of the indicator is lower, then this may indicate an incomplete use of the financial and production potential of the company. A value above one indicates that the company has more debt than assets. The latter indicates that the company may become bankrupt.
Directions for solving the problem of finding an indicator outside the normative limits
If the value of the indicator is below the normative value, then it is necessary to look for ways to attract additional borrowed funds, but this should be done only in case of an expected increase in the return on investment (or equity). If each ruble of funds raised will generate a financial result higher than the cost of using borrowed funds, then such an action is advisable.
If the value of the indicator is above the norm, then you can take such measures as:
- change the current dividend policy and reinvest the profits in daily work companies;
- attract additional funds current owners or new investors;
- optimize the current financial structure of assets to reduce the need for funding sources, etc.
The formula for calculating the concentration of borrowed capital:
Borrowed Capital Concentration = Amount of Borrowed Capital / Amount of Assets
An example of calculating the concentration of borrowed capital:
JSC "Web-Innovation-plus"
Unit of measurement: thousand rubles
Debt capital concentration (2016) = (20+68) / 200 = 0.44
Debt capital concentration (2015) = (20+90) / 233 = 0.47
The value of the indicator of Web-Innovation-plus JSC is within the normative limits. In 2016, 44% of the company's assets were financed by debt capital. In conditions of stable operation of the company and the industry, such a value indicates an acceptable level of financial risks. The company has the opportunity to attract credit funds at 20% per annum for 2 years, and each ruble of additional funds raised will generate an additional 0.3 rubles financial results before tax per year. In this case, a further increase in the concentration of borrowed capital would be desirable. To form more accurate recommendations, it is necessary to calculate the effect of financial leverage.
How stable or unstable this or that enterprise can be said, knowing how strong the company's dependence on borrowed funds, how freely it can maneuver its own capital, without the risk of paying extra interest and penalties for non-payment, or incomplete payment of accounts payable on time.
This information is important primarily for contractors (suppliers of raw materials and consumers of products (works, services)) of the enterprise. It is important for them how strong the financial security of the uninterrupted process of the enterprise with which they work.
As one of the models for determining the financial stability of an enterprise, the following can be distinguished:
Financial stability- this is the ability of the enterprise to maneuver means, financial independence. It is also a certain state of the company's accounts, which guarantees its constant solvency. The degree of stability of the state of the enterprise is conditionally divided into 4 types (levels).
1. Absolute stability of the enterprise. All loans to cover reserves (IR) are fully covered by own working capital (COC), that is, there is no dependence on external creditors. This condition is expressed by the inequality: 33< СОС.
2. Normal stability of the enterprise. Normal sources of coverage (NIP) are used to cover stocks. NIP \u003d SOS + ZZ + Settlements with creditors for the goods.
3. Unstable state of the enterprise. In order to cover reserves, additional sources of coverage are required to cover the normal ones. SOS< ЗЗ < НИП
4. Crisis state of the enterprise. NPC< ЗЗ. В дополнение к предыдущему условию предприятие имеет кредиты и займы, не погашенные в срок или просроченную кредиторскую и дебиторскую задолженность.
Equity concentration ratio
Determines the share of funds invested in the activities of the enterprise by its owners. The higher the value of this ratio, the more financially stable, stable and independent of external creditors the enterprise.
The equity concentration ratio is calculated using the following formula:
Coefficient of financial dependence.
The coefficient of financial dependence of the enterprise means how much the assets of the enterprise are financed by borrowed funds. Too much borrowing reduces the solvency of the enterprise, undermines its financial stability and, accordingly, reduces the confidence of counterparties in it and reduces the likelihood of obtaining a loan.
However, a too large share of own funds is also unprofitable for the enterprise, since if the profitability of the enterprise's assets exceeds the cost of sources of borrowed funds, then due to a lack of own funds, it is beneficial to take a loan. Therefore, each enterprise, depending on the field of activity and set on this moment tasks, you need to set for yourself the normative value of the coefficient.
The financial dependency ratio is calculated using the following formula:
where SC - WB equity - balance sheet currency
The coefficient of maneuverability of equity capital.
The maneuverability coefficient characterizes what share of sources of own funds is in a mobile form and is equal to the ratio of the difference between the sum of all sources of own funds and the cost outside current assets to the sum of all sources of own funds and long-term loans and borrowings.
It depends on the nature of the enterprise's activity: in capital-intensive industries, its normal level should be lower than in material-intensive ones.
Equity flexibility ratio is calculated using the following formula:
where SOS - own working capital SK - equity
Debt capital concentration ratio
The debt capital concentration ratio is essentially very similar to the equity concentration ratio ()
The debt capital concentration ratio is calculated using the following formula:
where ZK- borrowed capital(long-term and short-term liabilities of the enterprise) WB - balance sheet currency
Long-term investment structure ratio
The ratio shows the share of long-term liabilities in the volume of non-current assets of the enterprise.
A low value of this ratio may indicate the impossibility of attracting long-term loans and borrowings, while a too high value either indicates the possibility of providing reliable collateral or financial guarantees, or a strong dependence on third-party investors.
The coefficient of the structure of long-term investments is calculated according to the following formula:
where DP - - long-term liabilities () VOA - non-current assets of the enterprise
Long-term borrowing ratio
The ratio of long-term borrowed funds is defined as the ratio of long-term loans and borrowings to the sum of sources of own funds and long-term loans and borrowings.
The coefficient of long-term attraction of borrowed funds shows what part of the sources of formation of non-current assets at the reporting date falls on equity, and what part on long-term borrowed funds. A particularly high value of this indicator indicates a strong dependence on attracted capital, the need to pay significant amounts in the future Money in the form of interest on loans, etc.
The long-term borrowing ratio is calculated using the following formula:
where DP - long-term liabilities () SC - equity of the enterprise
Debt structure ratio
The indicator shows from what sources the borrowed capital of the enterprise is formed. Depending on the source of capital formation of the enterprise, it can be concluded how the non-current and current assets of the enterprise are formed, since long-term borrowed funds are usually taken for the acquisition (restoration) of non-current assets, and short-term loans for the acquisition of current assets and the implementation of current activities.
Debt capital structure ratio is calculated using the following formula:
where DP - long-term liabilities () ZK - borrowed capital
Debt to equity ratio
The more the coefficient exceeds 1, the greater the dependence of the enterprise on borrowed funds. Permissible level is often determined by the operating conditions of each enterprise, primarily by the speed of turnover of working capital. Therefore, it is additionally necessary to determine the turnover rate of inventories and receivables for the analyzed period. If accounts receivable turn around faster than working capital, which means a rather high intensity of cash flow to the enterprise, i.e. as a result - an increase in own funds. Therefore, with a high turnover of material working capital and an even higher turnover of receivables, the ratio of own and borrowed funds can be much higher than 1.
The ratio of own and borrowed funds is calculated according to the following formula:
where SC is the equity capital of the enterprise ZK is borrowed capital
Financial stability ratio, ratio, financial stability, Equity concentration ratio, capital, capital concentration, financial dependence, agility
One of the characteristics of the stable position of the enterprise is its financial stability.
The following financial stability ratios, characterize independence for each element of the enterprise's assets and for property as a whole, make it possible to measure whether the company is financially stable enough.
The simplest financial stability ratios characterize the ratio between assets and liabilities in general, without regard to their structure. The most important indicator this group is autonomy coefficient(or financial independence , or concentration of equity in assets).
sustainable financial position enterprises are the result of skillful management of the entire set of production and economic factors that determine the results of the enterprise. Financial stability is due to both stability economic environment, within which the activity of the enterprise is carried out, and on the results of its functioning, its active and effective response to changes in internal and external factors.
Debt capital concentration ratio -balance formula will be considered by us further - reflects the degree of debt burden on the enterprise. Let us study the specifics of calculating this indicator, as well as interpreting its value.
How to calculate the debt capital concentration ratio (according to the balance sheet)
The ratio in question shows the ratio of assets generated by external loans to the total capital of the enterprise. In fact, the degree of debt burden on the company. This includes both short-term and long-term loans.
The debt capital concentration ratio is determined by the formula:
KZ \u003d SD / PO,
KZ - coefficient of concentration of borrowed capital;
SD - the amount of short-term and long-term debts at the end of the analyzed period;
ON - the value of the organization's liabilities as of the end of the analyzed period (balance sheet currency).
If the analyzed period is 1 year, then the SD indicator will correspond to the sum of the values of rows 1400 and 1500 balance sheet organizations. The indicator of software is the value in line 1700 (the sum of the indicators in lines 1300, 1400 and 1500 of the balance sheet).
Concentration ratios of own and borrowed funds: the relationship of indicators
Very close in essence and in economic sense to the coefficient of concentration of borrowed funds is another indicator - a coefficient that reflects the concentration of the company's own capital.
It is calculated by the formula:
KS = SK / PO,
KS - coefficient reflecting the concentration of equity;
SC - the value of the equity capital of the company.
The SC indicator is located on line 1300 of the enterprise's balance sheet.
The higher the COP, the better. It is welcome if its value exceeds 0.5 (that is, the company has 50% or more equity). What is the optimal value of the coefficient reflecting the concentration of borrowed capital?
Debt capital concentration ratio: optimal value
The concentration ratio for borrowed capital is normalized based on the specifics of business processes at a particular enterprise. The industry-wide unofficial standard is 0.5 or less (thus, the presence of up to 50% of borrowed capital is allowed in the firm).
- A common approach is that the considered coefficient is estimated in dynamics. Its growth may indicate difficulties in business management or that the company is forced to develop mainly at the expense of attracted funds.
- Another approach is to estimate the coefficient in average values. So, if at the beginning of the reporting period it is 40%, and at the end - 60%, then its average value will correspond to the industry-wide norm.
In general, the debt capital concentration ratio below 0.5 is considered a positive criterion in assessing the effectiveness of enterprise management. It is obvious:
- the lower the debt burden on the company, the less will be the diversion of capital to pay interest to the creditor;
- the more own funds an enterprise has to service its activities, the more better performance turnover and efficiency in the use of working capital.
In turn, too low KZ indicators - for example, less than 0.1 - may indicate that the company, for some reason, is unable to take loans that may be needed.
A low ratio may be formed due to the fact that potential lenders refuse loans to the company, considering its business model to be insufficiently stable. Other possible reason A similar policy of creditors is the lack of a sufficient amount of liquid assets in the company that could be used as collateral.
Results
The borrowed capital concentration ratio reflects the share of the company's assets formed at the expense of borrowed funds. This indicator is calculated using the balance sheet. Its optimal value is within 0.1-0.5. In terms of economic meaning, the considered coefficient complements the equity concentration coefficient - its optimal value, in turn, should be above 0.5.
You can learn more about the specifics of capital formation in an enterprise in the articles:
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- .
Every enterprise, firm or organization is aimed at making a profit. It is the profit that makes it possible to carry out an investment policy in own working and non-current assets, to develop production capacities and innovativeness of products. In order to assess the direction of development of the enterprise, reference points are needed.
Such guidelines in financial terms and financial policy are the coefficients of financial stability.
Definition of financial stability
Financial stability is the degree of solvency (creditworthiness) of the enterprise, or the share of the overall stability of the enterprise, which determines the availability of funds to maintain the stable and efficient operation of the enterprise. The assessment of financial stability is milestone financial analysis enterprise, therefore it shows the degree of independence of the enterprise from its debts and obligations.
Types of Financial Strength Ratios
The first coefficient characterizing the financial stability of the enterprise is financial stability ratio, which determines the dynamics of state change financial resources enterprise in relation to how much the total budget of the enterprise can cover the costs of the production process and other purposes. Can be distinguished the following types coefficients (indicators) of financial stability:
The financial stability ratio determines the success of the enterprise, because its values characterize how much the enterprise (organization) depends on the borrowed funds of creditors and investors and the ability of the enterprise to timely and in full fulfill their obligations. High dependence on borrowed funds can hamper the activity of the enterprise in the event of an unplanned payment.
Financial dependency ratios
The coefficient of financial dependence is a kind of coefficients of the financial stability of an enterprise and shows the degree to which its assets are provided with borrowed funds. Big share financing assets with borrowed funds shows the low solvency of the enterprise and low financial stability. This, in turn, already affects the quality of relations with partners and financial institutions (banks). Another name for the coefficient of financial dependence (independence) is the coefficient of autonomy (in more detail).
The high value of own funds in the assets of the enterprise is also not an indicator of success. The profitability of a business is higher when, in addition to its own funds, the enterprise also uses borrowed funds. The task is to determine the optimal ratio of own and borrowed funds for effective functioning. The formula for calculating the financial dependency ratio is as follows:
Financial dependency ratio = Balance currency / Equity
Equity concentration ratio
This indicator of financial stability shows the share of the company's funds that is invested in the activities of the organization. A high value of this financial stability ratio indicates a low degree of dependence on external creditors. To calculate this financial stability ratio, you must:
Equity concentration ratio = Equity / Balance sheet
Ratio of own and borrowed funds
This ratio of financial stability shows the ratio of own and borrowed funds from the enterprise. If this coefficient exceeds 1, then the enterprise is considered independent of the borrowed funds of creditors and investors. If less, then it is considered dependent. It is also necessary to take into account the speed of turnover of working capital, therefore, in addition, it is also useful to take into account the speed of turnover of receivables and the speed of material working capital. If receivables turn around faster than working capital, then this shows a high intensity of cash inflows into the organization. The formula for calculating this indicator:
Ratio of own and borrowed funds = Own funds / Borrowed capital of the enterprise
Equity maneuverability ratio
This financial stability ratio shows the size of the company's own cash sources in mobile form. The standard value is 0.5 and above. Equity flexibility ratio is calculated as follows:
Equity maneuverability ratio = Own working capital / Equity capital
It should be noted that standard values also depends on the type of business.
Long-term investment structure ratio
This ratio of the financial stability of the enterprise shows the share of long-term liabilities among all assets of the enterprise. The low value of this indicator indicates the inability of the enterprise to attract long-term loans and borrowings. A high value of the coefficient shows the ability of the organization to issue loans on its own. A high value can also be due to a strong dependence on investors. To calculate the coefficient of the structure of long-term investments, it is necessary:
Long-term investment structure ratio = Long-term liabilities / Non-current assets
Debt capital concentration ratio
This financial stability ratio is similar to the indicator of equity maneuverability, the calculation formula is given below:
Debt capital concentration ratio = Debt capital / Balance sheet currency
Borrowed capital includes both long-term and short-term liabilities of the organization.
Debt structure ratio
This ratio of financial stability shows the sources of formation of borrowed capital of the enterprise. From the source of formation, we can conclude how the non-current and current assets of the organization were created, because long-term borrowed funds are usually taken for the formation of non-current assets (buildings, machines, structures, etc.) and short-term funds for the acquisition of current assets (raw materials, materials, etc.)
Debt structure ratio = Long-term liabilities / Non-current assets of the enterprise
Long-term borrowing ratio
This financial stability ratio shows the share of sources of formation of non-current assets, which falls on long-term loans and equity. High value coefficient characterizes the high dependence of the enterprise on borrowed funds.
Debt structure ratio = Long-term liabilities / (Long-term liabilities + Enterprise equity)
Conclusion
A set of financial stability ratios allows you to comprehensively determine and evaluate the success, nature and trends in the activities of the enterprise and the management of financial resources.
