To improve financial reporting indicators ( financial stability) the company needs to have its own working capital. One of the ways to increase your own working capital is to increase the company's authorized capital.
An increase in the company's authorized capital, first of all, leads to an increase in its financial independence.
How does an increase in authorized capital affect financial reporting indicators?
In the practice of financial analysis, the calculation of the autonomy coefficient is used, which characterizes the company's independence from borrowing.
In generalized form, the calculation of this coefficient can be represented by the formula:
Independence ratio = Equity / Assets.
If you use indicators balance sheet, then the formula will look like:
Independence coefficient = line 1300 (Section III “Capital and Reserves”) / line 1600 (Balance sheet currency).
Accordingly, the higher the value of this indicator, the more financially independent the company is from external debt obligations.
When analyzing international reporting, the indicator used is the coefficient of financial dependence, which is the inverse of the indicator of the autonomy coefficient, showing the ratio of the structure of equity and borrowed capital.
If a company is acutely experiencing a shortage of its own working capital to conduct business, and the balance sheet structure does not allow attracting potential investors, obtaining bank loans and other external borrowings, the company may decide to increase its authorized capital.
Ways to increase authorized capital
So, society decided to increase authorized capital. In what ways can this be done?
The authorized capital can be increased at the expense of the company’s property, and (or) at the expense of additional contributions of the company’s participants, and (or) at the expense of contributions from third parties accepted into the company (unless this is prohibited by the Charter).
Let us briefly outline the procedural aspects of the last two methods of increasing the authorized capital.
Increasing the authorized capital through contributions from third parties
Stage 3. Adoption by the general meeting of participants of a decision to increase the authorized capital (based on an application of a third party or applications of third parties to admit him or them into the company).
The decision is made only by those participants whose information as participants is available in the Unified State Register of Legal Entities at the time such a decision is made.
Stage 4. Making decisions (simultaneously with the decision to increase the authorized capital and making a contribution) on the inclusion of third parties in the company, on making changes to the company’s charter (in connection with an increase in the authorized capital), on determining the nominal value and size of the share of a third party, as well as on changes size of shares of company participants.
Such decisions are made unanimously by all participants in society.
In this case, the nominal value of the share acquired by each third person admitted to the company should not exceed the value of his contribution.
The deadline for making additional contributions to the authorized capital of the company by third parties is no later than six months from the date of adoption of the decision by the general meeting.
For third parties, changes to the company's charter become effective from the moment of their state registration. If third parties do not comply with the deadlines for making additional contributions, then the increase in the authorized capital is recognized as failed.
Increasing the authorized capital due to additional contributions of company participants
Stage 1. Notification of company participants about the holding of a general meeting of participants.
Stage 2. Holding a meeting of company participants.
The general meeting of the company's participants is held in the manner established by the company's charter and its internal documents.
Stage 3. Adoption by the general meeting of participants of a decision to increase the authorized capital through additional contributions of its participants.
The decision to increase the authorized capital is made by a majority of at least 2/3 of the total number of votes of the company’s participants, if necessary more votes for making such a decision are not provided for by the company's charter.
The deadline for making additional contributions of participants to the authorized capital of the company is within two months from the date the company makes the corresponding decision (unless a different period is established by the company’s charter or decision).
Stage 4. Making decisions (no later than a month from the date of expiration of the period for making additional contributions) on approving the results of making additional contributions and on introducing changes to the company’s charter related to increasing the size of the authorized capital.
In this case, the additional contribution of each participant should not exceed part of the total cost of additional contributions, proportional to the size of his share in authorized capital society.
For example
The size of the authorized capital of the company is 50,000 rubles. The share of the first participant is 10% (RUB 5,000), the second participant’s share is 90% (RUB 45,000). At the general meeting of participants, a decision was made to increase the authorized capital by 2 times, i.e. for 50,000 rubles. Each of the two participants of the company has the right to make an additional contribution in proportion to its share of participation in the authorized capital, i.e.:
1 participant - 50,000 rub. x 10% = 5,000 rub.;
2nd participant - 50,000 rub. x 90% = 45,000 rub.
That is, the amount by which the nominal value of the share will increase:
for 1 participant – 5,000 rubles;
for 2 participants – 45,000 rub.
Stage 5. State registration changes due to an increase in the authorized capital.
Equity capital is the foundation, the financial basis of the company and represents funds (sources of financing) owned by it under ownership rights and used to form a certain part of its assets.
Magnitude and dynamics equity- the most important characteristic of the company’s condition and its reliability. Among the parameters that determine a company's position in the market and its position relative to competitors, the amount of equity capital is mentioned along with the turnover indicator.
gg and L
3 company releases often contain the following wording: Chelyabinsk LLC Financial
the Milcom-Invest agency decided to increase its equity capital from 8 to 20 million rubles through a merger with the Ekaterinburg-based LLC Financial Company of the Urals (Uoalpressinform, 09.13.02); BookerCreditService Company LLC, the leader in securities on the Russian stock market, has increased its authorized and equity capital. The authorized capital increased from 7 to 307 million rubles, equity capital - from 54.36 to 336 million rubles. Among the 10 brokers with the largest trading turnover on the stock market, BrokerCreditService Investment Company now has the highest indicator not only in terms of turnover, but also in terms of equity capital. The increase in equity capital indicates that the company has not only established itself among the leaders, and among the legislators of the stock market (source: lnThePress.ru).
The growth of equity capital is a positive factor and indicates an increase in the financial stability of the company. The growth of equity capital increases the value of the company and its investment attractiveness, as well as client potential (for example, for lending organizations, brokerage companies). A change in equity capital is the reason for a change in all the main characteristics of the financial condition of an enterprise: liquidity, financial stability, and profitability.
I. Increase in the share (absolute value) of the authorized capital.
Possible reasons:
attracting additional share or share capital: additional contributions to the authorized capital, additional issue of shares, merger of companies.
An increase in the authorized capital can be considered as confirmation of the business activity of the enterprise and the strengthening of its position in the market (for example, an additional issue of shares).
II. Increase in the share (absolute value) of additional capital.
Possible reasons:
revaluation of fixed assets.
The only reason for a change in additional capital is the revaluation of fixed assets. However, it is clear to say positive impact revaluation of the financial position of the company is very difficult. More precisely, it is difficult to talk about any noticeable impact of the revaluation on the financial position of the company. Formally, the revaluation will lead to an increase in the absolute value and, as a rule, the share of equity in total liabilities. However, changes in the value of assets and additional capital in accounting documents do not create such additional sources of financing for the current activities of the company that appear due to the issue of shares or an increase in accumulated capital.
Thus, the growth of equity capital due to the growth of additional capital is less priority and significant for the company than the growth of equity capital due to an increase in accumulated capital (received profit) or authorized capital. In the case of growth of equity capital due to additional capital, it is difficult to talk about an increase in the financial stability of the company.
Example from practice. Controversial conclusion about the financial stability of the company, based on the share of equity capital in liabilities
Company 1, whose balance sheet is presented in table. 2.10, claims a high level of financial stability. Conclusion about financially? sustainability is based on a significant share of the company's equity capital and liability structure, which during the analyzed year amounted to 72-75%.
Table 2.10. Analysis of the structure of equity capital as a basis for assessing the financial stability of the company Name of position. Reporting dates 04/01/2005 07/01/2005 10/01/2005 01/01/2006 Total non-current assets 4/ 744,119 4/ 592,033 47,581,473 4,755 0334 Inventories Including: raw materials, materials and others 268,015 3 17 8/1 319 616,346,366 similar assets work in progress 210,351 219,979 220,958 306,443 finished products and goods 130,470 148,422 193,089 182,271 Accounts receivable - 3,307,668 3,164,716 3 81/ 226 4,021,227 buyers and customers Advances issued 334,704 316 226 314456 359 035 Cash 402 168 397 022 400 201 408 780
Reporting dates
Item name
01.04,2005 01.07.2005 01.10.2005 01 01.2006
Other defense assets Total current assets BALANCE
Authorized capital
-29 481 712 -29 438 368 38 /22 732 38 /65 576
Additional capital
Accumulated capital
Total equity
Total long-term liabilities
Total current liabilities
BALANCE
Balance sheet structure
Share of equity in liabilities
Share of long-term liabilities Share of short-term liabilities Structure of equity capital Usiavnoy 1 capital Additional capital Accumulated capital Total equity capital
1 956 690 6 610 066 54 354 1Gb 36 250 000 33 304 870 -26 642 395 40 912 4/5 0
13 441 710 54 354 185
75,3%
0,0% 24,7%
88.6% 81,4% -70.0% 100,0%
1 942 613 6 506 849 54 098 882 36 250 000 33 304 870 -28 433 625 41 121 245 0
12 977 637 54 098 882
76,0%
0,0% 24.0%
88,2% 81,0% -69,1% 100,0%
624 759 5 890 305 53 471 778 36 250 000 33 304 870
0
14 749 046 53 471 778
72,4%
0,0% 27,6%
90.1% 86,0% -76,1% 100,0%
732 927 6 357 049 53 907 383 36 250 000 33 304 870
0
15 141 807
53 907 383
71,9%
0,0% 28.1%
90,0% 85,9% -75,9% 100,0%
Analysis of the structure of equity capital shows that the positive value of equity capital is formed due to additional capital. At the same time, the accumulated capital, which characterizes the company's performance, is negative, and its negative value is 50% of assets. In this situation, it is difficult to talk about a sufficient amount of equity capital and the financial stability of the company.
III. Accumulated capital is decreasing/accumulated capital is negative.
Reasons for reduction:
losses increase;
use of funds.
Reasons for a negative value:
uncovered losses of the reporting year and previous years exceed accumulated retained earnings and funds.
Analysis of accumulated capital is a significant component of a company’s financial diagnostics. Accumulated capital is the most important source of growth of equity capital. Own capital, in turn, is a factor determining financial condition companies.
Accumulated capital reflects the results of the company's activities - profit remaining at the disposal of the company. The growth of accumulated capital is one of the most important positive characteristics of the company’s condition and an indicator of the enterprise’s potential capabilities to maintain an acceptable level of financial condition. This dynamic suggests that the company “earns more than it spends.” A reduction in accumulated capital is an indicator that an enterprise is “eating away” the results of its activities. The dynamics of changes in accumulated capital must be reflected in the analytical note.
When accumulated losses (negative accumulated capital) exceed the sum of the company's authorized and additional capital, the value of the company's equity becomes negative. A negative amount of equity capital is a negative characteristic, meaning a loss of financial stability of the company and a significant dependence of the company’s financial position on borrowed sources of financing. As a rule, this situation is typical for enterprises that have significant losses (unprofitable activities over a long period or significant losses in certain periods). In case negative!! the value of equity capital, there is also a negative value of net working capital- one of the parameters characterizing the financial stability and liquidity of the company.
Enterprises with a negative equity capital often have excess (overdue) debt to the budget, personnel, as well as overdue debt on borrowed loans. This situation is quite logical and understandable, since in the absence of our own sources of financing, the only possible lever for maintaining current solvency is the use of funds in settlements, or more precisely, the deferment of current payments (increasing the turnover period of current liabilities). A possible solution is also to attract loans, but in conditions of negative equity capital, lending institutions will be reluctant to cooperate with the company (especially when it comes to long-term lending).
The consequence of excess debts to the budget and creditors are penalties and fines, which further increase the company’s losses, being reflected in the income statement, in particular in the positions “Income tax and other similar payments”, “Other non-operating expenses”.
Thus, a negative equity capital is an indicator of unprofitable companies and gives rise to a kind of “vicious circle” of further weakening of the enterprise’s condition (Fig. 2.3). In this case, improving the condition of the enterprise is impossible without optimizing the profitability of its activities. To determine the levers for optimizing profitability, an analysis of the structure of manufactured products, the cost structure, and areas for using profits is necessary (see Chapter 5, “Profitability Analysis”). For enterprises whose own and (or) accumulated capital has a rather large negative value, radical “surgical” measures are often required to optimize profitability, namely: abandonment of part of the production assets, transfer of many technological operations to outsourcing.
Temporarily maintaining the solvency of an enterprise is possible by increasing asset turnover. The use of working capital reserves to maintain current solvency may consist, in particular, in reducing the turnover period of accounts receivable, increasing the share and period of prepayment of advance payments from buyers, i.e. in the release of funds in settlements (see section “Turnover Analysis” in Chapter 3). It is also possible to provide subsidies, targeted funding and revenue.
It should be emphasized that measures to optimize working capital provide a temporary effect - the release of Money It is implemented at a time and allows you to provide support for the current solvency of the company. Stabilization of the financial position of the enterprise and its sustainability in the future is ensured by profitability.
The decrease in the absolute value of the accumulated and own captain is clearly a negative trend. However, a decrease in the share of equity capital in liabilities with an increase in the absolute value of accumulated and equity capital (or with a constant value) does not always mean a deterioration in the financial condition of the company and a loss of financial stability.
The share of borrowed capital, growing to a certain limit, may not lead to a loss of financial stability and at the same time contribute to the growth of return on equity. Increasing the share of own capital is not an end in itself (it is the share, the growth of the absolute value of own capital that is an unambiguous condition for the development of the enterprise). In the Western practice of financial analysis, there is an opinion according to which the complete absence of loans reflects the inability of an enterprise to work in the financial market and inability to in full take advantage of business growth opportunities.
What is the permissible limit for increasing the share of borrowed capital and reducing the share of equity capital? It can be determined by calculation.
Financial stability is one of the criteria successful business. It is ensured by a sufficient share of equity capital. Therefore, many managers strive to increase the share of their own capital, using different methods for this.
With a sufficient share of equity capital, borrowed sources are used by the enterprise only to the extent that it can ensure their full and timely repayment. The level of independence of an enterprise from borrowers is shown by the equity ratio.
The equity ratio is calculated using the following formula:
If the equity ratio at the end of the reporting period is less than 0.1 (10%), then the structure of the enterprise's balance sheet is recognized as unsatisfactory, and the enterprise is considered insolvent. This standard was established by order of the Federal Administration for Insolvency (Bankruptcy) dated September 12, 1994 No. 56-r.
So how can you increase your equity share? Analyst of the Expert service at SKB Kontur Ekaterina Karsakova recommends using the following operations for this purpose:
Revaluation of fixed assets - revaluation of a group of similar fixed assets at current (replacement) cost is carried out no more than once a year. It is carried out on the first day of the reporting year, and its results are recorded in the balance sheet only in the reporting year (and not at the end of the previous year). It should be taken into account that an increase in the residual value of fixed assets leads to an increase in corporate property tax, but is not included in the income tax base.
Increase the authorized capital;
Contributions of founders to the company's property are made without changing the authorized capital. In this case, repayment of invested funds (for example, a loan) is not expected, and funds contributed by a participant or shareholder to increase net assets are not subject to income tax (clause 3.4, clause 1, article 251 of the Tax Code of the Russian Federation). It is better to use money rather than property as a contribution, so that the transferring party (if it is an organization and not individual) the VAT base did not arise from the gratuitous transfer of property.
Don't forget that there is a concept of a maximum allowable share of equity, and too much equity can be harmful to your business.
“Expert” is a service from SKB Kontur that allows you to track the dynamics of changes in the share of equity capital. You will be able to regularly receive up-to-date reports on the financial condition of the enterprise, identify the likelihood of an on-site tax audit, the possibility of bankruptcy and the level of creditworthiness. With the help of individual advice on improving business, the “Expert” will tell you what steps need to be taken to improve the company’s financial performance and increase profits.
Income tax. How to determine the share of tax paid by a branch? As is known, the amount of income tax (advance payments thereon) credited to the revenue side of regional and local budgets Russian organizations are contributed at the location of the organization, as well as at the location of each of its separate divisions.
When creating the company, it was decided to make a contribution to the authorized capital in addition to cash and property. And here a dispute arose between the tax office and the taxpayer. The essence of the dispute was the following - how to correctly calculate the value of property for further calculation of depreciation.
Continuation of the table. 2
Change |
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Index | ||||||||||
Negotiable | ||||||||||
When analyzing tables like the one above, they use the deduction method (from general to specific). IN in this case the analysis is carried out in the following sequence:
1. First, note the total amount of the enterprise's assets as of the last reporting date;
3. Then the asset structure and structural changes are assessed
With obligatory economic comments.
When analyzing Table 2, it is necessary to answer the questions:
1. In general, is the company experiencing an increase or decrease in the value of its assets?
2. Due to what components (non-current or current assets) changes in property occurred?
3. Which assets (non-current or current) changed at a faster pace?
4. Which assets (non-current or current) occupied the largest share in the property structure, what were the structural changes?
5. What do the identified structural changes indicate? For analytical conclusions, it is recommended to use
the explanations given below.
Reduction in property value indicates a reduction
establishment of an enterprise of economic activity. The reasons may be varied, but establishing the fact of curtailment of economic
activity means that in further organization may become insolvent.
Typically, an increase in property value the enterprise is considered a positive fact of its activity. An increase in assets indicates an increase in the economic potential of the organization. However, when noting the increase in the balance sheet currency for the reporting period, it is necessary to take into account the impact of inflation, when the increase in the value of property is not associated with the development of the organization's activities. For a more correct conclusion, it is advisable to compare the growth rate of assets with the inflation rate.
Therefore, most often, when analyzing the information in Table 2, they pay attention to the ratio of the rates of dynamics of interrelated indicators. In this case, rapid growth of non-current assets in comparison with the increase in current assets indicates an expansion of the production (material) base. A significant increase in non-current assets may also be due to active investment activity.
The structure of an organization's total assets largely depends on the type of business.
Increasing the share of non-current assets in property
indicates the capitalization of profits and the investment orientation of the enterprise's policy.
Decrease in the share of current assets complicates financial co-
standing of the enterprise, since the formation of a less mobile asset structure leads to a slowdown in the turnover of the organization’s resources.
A significant change in the share of current assets may indicate a change in the type of activity.
To find out the specific reasons for changes in the structure of assets, it is necessary to conduct more detailed analysis individual sections and items of the analytical balance sheet asset.
The composition, structure and dynamics of non-current assets of an enterprise are studied based on the information in Table 3.
Table 3. Analysis of the organization’s non-current assets at the end of the year
Change |
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Index | |||||||||||
Intangible- | |||||||||||
new assets | |||||||||||
Basic | |||||||||||
facilities | |||||||||||
Long-term | |||||||||||
financial | |||||||||||
attachments | |||||||||||
negotiable | |||||||||||
Total | |||||||||||
When analyzing Table 3, it is necessary to answer the questions:
1. How have non-current assets changed?
3. Which types of non-current assets changed at a faster pace?
4. What types of non-current assets prevailed in the structure
5. What does this indicate?
Very often, balance sheet data indicates
reduction in the value of non-current assets . In this case, you should
The point is that they are formed mainly from depreciable property and the balance sheet shows its residual value (minus depreciation). Therefore, for example, a decrease in the value of fixed assets may be due not only to the disposal of obsolete or unnecessary fixed assets, but also to the accrual of depreciation.
An increase in fixed assets indicates an expansion of the enterprise's production base and is assessed positively if it is not related to the results of their revaluation (see Table 7).
The presence of intangible assets in the organization’s property indirectly characterizes the strategy chosen by the organization as innovative, since the company invests in patents and other intellectual property. Increase in intangible assets speaks about the development of the innovative component of the organization’s activities.
The presence of long-term financial investments in the balance sheet indicates that the organization is carrying out investment activities and seeks to receive additional profit by investing in the activities of other business entities. Uwe-
identification of long-term financial investments justified if brought
sits the enterprise's income. A high share of long-term financial investments is a confirmation of the financial and investment strategy of the enterprise.
The composition, structure and dynamics of the enterprise's current assets are studied based on the information in Table 4.
Table 4. Analysis of the organization's current assets at the end of the year
Change |
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Index | ||||||||||
Accounts receivable | ||||||||||
debt | ||||||||||
Short term | ||||||||||
financial | ||||||||||
attachments | ||||||||||
Cash | ||||||||||
facilities | ||||||||||
negotiable | ||||||||||
Analyzing Table 4, it is necessary to answer the questions:
1. How have current assets changed?
2. What components accounted for these changes?
3. Which types of current assets changed at a faster pace?
4. Which elements of current assets occupied the largest share, what were the structural changes?
5. What does this indicate?
Current assets show the total amount of the enterprise's economic assets that are in circulation.
A decrease in current assets indicates a curtailment of production and a reduction in the volume of activity of the enterprise. An increase in current assets may indicate not only an expansion of production or the effect of an inflation factor, but also a slowdown in their turnover.
Cash and short-term financial investments represent the most liquid part of current assets, therefore the main task of liquidity management is to increase their share.
The increase in the share of cash is subject to a positive assessment from the point of view of financial condition. However, the presence of large cash balances over a long period of time may be the result of improper use of the organization's capital; they must be put into circulation.
The presence of short-term financial investments in current assets indicates that the needs of current activities are sufficiently provided with cash and there is even a certain “reserve” that is placed in cash equivalents.
A sharp decrease in inventories can be caused by a reduction in the volume of activity of the enterprise, and vice versa.
An increase in the share of inventories may indicate:
- increasing the production potential of the enterprise,
- the desire to protect funds from depreciation due to inflation by investing in reserves;
- irrationality of the chosen economic strategy, as a result of which there is an increase in the share of the least liquid part of current assets.
A reduction in the share of inventories is assessed positively if they ensure the continuous progress of the organization’s production and commercial activities.
Particular attention should be paid to accounts receivable, which represents the actual immobilization of the organization’s funds for payments (into the turnover of other enterprises).
A decrease in the share of accounts receivable is a positive fact that contributes to the financial stability of the enterprise.
However, the growth of accounts receivable is not always assessed negatively. An increase in the size of accounts receivable may be associated with rising prices for the company's products, expansion of the sales market, and the desire to increase sales by providing trade credit (installment payment) to customers.
In addition to the size and dynamics of receivables, the level of receivables is assessed based on the coefficients of diversion of assets and current assets into receivables (Table 5).
Table 5. Calculation of coefficients for the diversion of assets into the organization’s receivables at the end of the year
Indicator 201… 201… 201…
1Accounts receivable, million rubles.
2Assets, million rubles.
3Ratio of diversion of assets into accounts receivable (line 1/line 2)
4Current assets, million rubles.
5Ratio of diversion of current assets into accounts receivable (line 1/line 4)
The coefficient of diversion of assets into accounts receivable
The ratio shows what part of the assets is the debt of other persons of the organization. The growth trend of the indicator indicates an increase in the share of immobilized assets to debtors.
The coefficient of diversion of current assets into accounts receivable shows what part of current assets is immobilized. An increase in this indicator indicates an increase in the diversion of enterprise funds from circulation and should be assessed negatively. Unjustified diversion of assets from current activities ultimately leads to an increase in accounts payable. Therefore, it is important to pay attention to the size and ratio of the dynamics of accounts receivable (Table 4) and accounts payable (Table 8). Approximately the same sizes of receivables and payables and the pace of their dynamics indicate competent management of receivables. Excessive enthusiasm in lending to debtors can lead an enterprise to a lack of financial resources, which will require the attraction of “expensive” loans and borrowings for the implementation of current activities. This may negatively affect the financial condition of the organization and the performance of its activities.
2.3 Analysis of capital formation
The acquisition and creation of assets (property) of the organization is carried out at the expense of its own and borrowed capital.
The purpose of analyzing the liability balance is:
1. Assessment of the total capital of the organization;
2. Analysis of equity capital and its components;
3. Analysis of borrowed capital and its components;
4. Determining the financial stability of the organization.
When filling out table 6, the liability information of the balance sheet is used.
Table 6. Analysis of the organization's capital at the end of the year
Change |
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Index | ||||||||||
Own | ||||||||||
When analyzing Table 6, it is necessary to answer the questions:
1. In general, the company is experiencing growth or decrease
capital?
2. Due to what components (own or borrowed sources) did the changes in capital occur?
3. Which sources (equity or debt) changed at a faster pace?
4. What capital occupies the largest share, what are the structural changes?
5. What does this indicate?
Business owners prefer reasonable leverage. An increase in the share of borrowed funds with an increase in the balance sheet currency indicates a desire to increase income through additional attraction of capital.
For creditors, a company's own capital is a guarantee that it will fulfill its obligations, so they give preference to financially stable organizations whose own funds exceed the amount of attracted resources. If the share of equity capital decreases, the enterprise's ability to provide loans sharply deteriorates. An increase in the share of own funds helps to strengthen the financial stability of the organization and reduce the degree of its financial risks.
The faster growth of equity capital compared to the increase in the total amount of capital indicates an increase in the financial stability of the organization, and vice versa.
An increase in the organization's capital over the analyzed period in a number of cases may indicate the development of the organization, and its decrease may indicate a reduction in the organization's economic turnover, which may cause its insolvency. Moreover, a reasonable conclusion can be made only after a thorough study of changes in the items of equity and borrowed capital.
The organization's own capital is the basis of its functioning. It includes sources of financial resources that are different in their economic purpose, principles of formation and use. The composition, structure and dynamics of the organization's own capital are studied based on the information in Table 7.
Table 7. Analysis of the organization’s equity capital at the end of the year
Change |
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Index | |||||||||||
Statutory | |||||||||||
Revaluation | |||||||||||
non-current | |||||||||||
Additional | |||||||||||
revaluation) | |||||||||||
Spare | |||||||||||
Undistributed | |||||||||||
Other income | |||||||||||
and reserves | |||||||||||
When analyzing Table 7, it is necessary to answer the following questions:
1. Does the company have losses on its balance sheet? What are their
size?
2. In general, is the company experiencing an increase or decrease in equity capital?
3. What sources accounted for changes in equity?
4. Which sources were changing at a faster rate?
5. Which source has the largest share?
6. What does this indicate?
Writing competent analytical conclusions requires knowledge of the specifics of the formation of individual items of equity capital. Please use the explanations below.
Increase the authorized capital can be considered as a sub-
confirming the organization’s business activity and strengthening its position in the market. On the contrary, an increase in capital due to the results of the revaluation does not indicate the real development of the organization.
Growth of additional capital indicates receipt of budget allocations to finance capital investments. It may also increase due to the receipt of share premium if there is an increase in the authorized capital of the organization.
The most important and mobile source of replenishing equity capital is retained earnings, which can be considered as the main source of self-financing of activities, used to replenish working capital (stocks of raw materials and supplies), modernize production (purchase of fixed assets). Analysis of the sources of property formation is associated with the assessment of alternative options for financing the activities of the enterprise. The growth of equity capital due to retained earnings may cause a decrease in the level of short-term accounts payable, the amount of long-term and short-term loans and borrowings.
Reserve capital- this is the insurance capital of an organization intended to compensate for losses from economic activities
Analysis of the financial condition of the enterprise
Assignment for the calculation part.
The financial condition of an enterprise is expressed in the ratio of the structures of its assets and liabilities, i.e., the enterprise’s funds and their sources. The main tasks of financial condition analysis are to determine the quality of the financial condition, study the reasons for its improvement or deterioration over the period, and prepare recommendations to improve the financial stability and solvency of the enterprise. These tasks are solved on the basis of a study of the dynamics of absolute and relative financial indicators and are divided into the following blocks:
- structural analysis of assets and liabilities;
- financial stability analysis;
- analysis of solvency (liquidity);
The information sources for calculating indicators and conducting analysis are annual financial statements. (Option 16)
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Balance sheet |
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ASSETS |
Line code |
for the beginning of the year |
at the end of the year |
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1 |
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I. Non-current assets |
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Intangible assets |
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Fixed assets |
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Construction in progress |
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Profitable investments in material assets |
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Long-term financial investments |
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Other noncurrent assets |
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Total for Section I |
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II. Current assets |
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including |
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raw materials, supplies and other similar assets |
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animals for growing and fattening |
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costs in work in progress |
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|
finished products and goods for resale |
|||
|
goods shipped |
|||
|
VAT on purchased assets |
|||
|
Accounts receivable (payments expected more than 12 months after the reporting date) |
|||
|
Accounts receivable (payments expected within 12 months after the reporting date) |
|||
|
Short-term financial investments |
|||
|
Cash. |
|||
|
including |
|||
|
current accounts |
|||
|
foreign currency accounts |
|||
|
other funds |
|||
|
Other current assets |
|||
|
Total for Section II |
|||
|
BALANCE |
|||
|
PASSIVE |
Line code |
for the beginning of the year |
at the end of the year |
|
1 |
|||
|
IV. Capital and reserves |
|||
|
Authorized capital |
|||
|
Extra capital |
|||
|
Reserve capital |
|||
|
Social Sphere Fund |
|||
|
Special-purpose financing |
|||
|
Retained earnings from previous years |
|||
|
Uncovered loss from previous years |
|||
|
Retained earnings of the reporting year |
|||
|
Uncovered loss of the reporting year |
|||
|
Total for Section IV |
|||
|
V. Long-term liabilities |
|||
|
Loans and credits |
|||
|
including |
|||
|
bank loans |
|||
|
Other long-term liabilities |
|||
|
Total for Section V |
|||
|
VI. Short-term liabilities |
|||
|
Loans and credits |
|||
|
including |
|||
|
bank loans |
|||
|
other loans |
|||
|
Accounts payable |
|||
|
including |
|||
|
suppliers and contractors |
|||
|
bills payable |
|||
|
debt to subsidiaries and affiliates |
|||
|
debt to the organization's personnel |
|||
|
debt to government off-budget funds |
|||
|
debt to the budget |
|||
|
advances received |
|||
|
other creditors |
|||
|
Debt to participants (founders) for payment of income |
|||
|
revenue of the future periods |
|||
|
Reserves for upcoming expenses and payments |
|||
|
Other current liabilities |
|||
|
Total for Section VI |
|||
|
BALANCE |
General assessment of the dynamics of the financial condition of the enterprise.
For a general assessment of the dynamics of the financial condition of an enterprise, balance sheet items should be grouped into separate specific groups based on liquidity (asset items) and maturity of liabilities (liability items). Based on the aggregated balance sheet, an analysis of the structure of the enterprise’s property is carried out, which in a more orderly form is conveniently carried out in the following form:
Aggregated balance.
Table 1.
|
Assets |
For the beginning of the year |
At the end of the year |
Passive |
For the beginning of the year |
At the end of the year |
|
1. Immobilized assets |
1. Own capital |
||||
|
2. Mobile, current assets |
2. Borrowed capital |
||||
|
2.1. Inventories and costs |
2.1. Long-term loans and borrowings |
||||
|
2.2 Accounts receivable |
2.2. Short-term loans and borrowings |
||||
|
2.3. Cash and securities |
2.3. Accounts payable |
||||
|
Total |
Total |
- total value of the enterprise's property = currency, or balance sheet total;
- the cost of immobilized assets (i.e. fixed and other non-current assets) = the total of section I of the balance sheet asset;
- cost of working (mobile) assets = total of section II of the balance sheet asset;
- the amount of receivables in the broad sense of the word (including advances issued to suppliers and contractors) = lines 230 and 240 of section II of the balance sheet asset;
- the amount of free cash in the broad sense of the word (including securities and short-term financial investments) = lines 250 and 260 of section II of the balance sheet asset;
- cost of equity = section III of liabilities and lines 640,650 of section V of liabilities of the balance sheet;
- the amount of borrowed capital = the sum of sections IV and V of the liabilities side of the balance sheet without lines 640,650;
- the amount of long-term loans and borrowings, intended, as a rule, for the formation of fixed assets and other non-current assets, Section IV of the balance sheet liabilities;
- the amount of short-term loans and borrowings, intended, as a rule, for the formation of current assets, = line 610 of section V of the balance sheet liabilities;
- the amount of accounts payable in the broad sense of the word = lines 620,630 and 660 of section V of the balance sheet liability.
General assessment of the dynamics and structure of balance sheet items
Analysis of the structure of enterprise assets.
Table 2.
Analytical grouping and analysis of balance sheet asset items
|
Balance sheet asset |
At the beginning of the period |
At the end of the period |
Growth rate % |
|||
|
1. Property - total |
||||||
|
1.1 Immobilized assets |
||||||
|
1.2 Current assets |
||||||
|
1.2.1 Reserves |
||||||
|
1.2.2. Accounts receivable |
||||||
|
1.2.3 Cash |
||||||
The total assets of the enterprise during the analyzed period increased by 76,730 thousand rubles. (or their growth rate compared to the beginning of the period was 160.88%). The increase in the enterprise's assets occurred due to an increase in the size of non-current assets by 38,476 thousand rubles. or by 195.84%, with a simultaneous increase in the volume of current assets by 38,254 thousand rubles. or 144.54%.
The balance sheet currency reflects the property “power” of the enterprise, therefore it is believed that the larger the balance sheet currency, the more reliable the enterprise. An increase in the size of the enterprise's property (i.e., non-current and current assets) indicates a positive change in the balance sheet.
The largest share in the structure of total assets falls on current assets (65.18% at the beginning of the analyzed period and 61.23% at the end), therefore the enterprise has a “light” asset structure, which indicates the mobility of the enterprise’s property.
Fixed assets. Non-current assets of the enterprise during the analyzed period increased by 38,254 thousand rubles. or by 195.84%. The increase in non-current assets occurred mainly due to a significant increase in the size of fixed assets, an increase in the volume of unfinished construction, the emergence of long-term financial investments, as well as an increase in the size of intangible assets.
Thus, the increase in the share of non-current assets in the structure of total assets made the balance sheet more “heavier”. Enterprises with a “heavy” asset structure have a high share of overhead costs (due to depreciation and maintenance costs of fixed assets associated with their ongoing repairs and payment for utilities) and are especially sensitive to changes in revenue. However, such enterprises, due to the increased share of depreciation charges in the cost structure, can have money without having profit (since the sources of cash flow from core activities are profit and depreciation). This is due to the fact that depreciation is part of the enterprise’s costs as part of the cost price, which is not an expense item because does not require payment. However, the property of depreciation charges is such that they can be fully converted into cash only in the case when the company does not have losses.
The structure of non-current assets during the analyzed period has changed significantly, although at the same time the main part of the enterprise's non-current assets falls on fixed assets. The largest part of non-current assets is represented by production fixed assets and unfinished construction, which characterizes the enterprise's orientation towards creating material conditions for expanding the main activities of the enterprise. The emergence of long-term financial investments reflects the financial and investment development strategy.
Current assets. The analyzed enterprise is characterized by a high share of current assets in the structure of the enterprise's total assets (68.15% at the beginning of the year and 61.23% at the end). The current assets of the enterprise during the analyzed period increased by 38,254 thousand. rub. or by 144.54%. The increase in current assets was due to an increase in short-term receivables, inventories, long-term receivables of other current assets, cash and VAT.
The structure of the enterprise's current assets as part of property during the analyzed period remained quite stable. Thus, the largest share invariably falls on inventories (51.28% at the beginning of the year and 38.77% at the end).
The decrease in the level of inventories in the structure of current assets cannot be judged unambiguously, since in fact there was not a decrease, but an increase in the valuation of inventories (by 13,989 thousand rubles), but in comparison with an almost twofold increase in the valuation of immobilized assets in the property structure enterprise (discussed earlier), there was a decrease in the share of inventories in the property structure.
An increase in inventory levels can:
- on the one hand, indicate a decline in the activity of the enterprise, since large inventories lead to the freezing of working capital, a slowdown in its turnover, damage to raw materials and supplies increases, and storage costs increase, which negatively affects the final results of operations. In this case, you should find out whether the inventory contains slow-moving, stale, unnecessary material assets; this can be easily established using warehouse accounting data or balance sheets. The presence of such materials indicates that working capital is at risk of being frozen for long time in inventories.
- on the other hand, the reason for an increase in the size of inventories can only be an increase in their value due to quantitative or inflationary factors.
A significant share in the structure of inventories is occupied by work in progress. A decrease in work in progress balances may indicate, on the one hand, a decrease in production volumes and possible downtime, and on the other hand, an acceleration of capital turnover due to a decrease in the production cycle.
The share of receivables in the structure of the enterprise's property during the analyzed period increased from 15.3% to 20.39%. An increase in accounts receivable and its share in current assets may indicate an imprudent credit policy of the enterprise in relation to customers, or an increase in sales volumes, or the insolvency and bankruptcy of some customers.
The smallest share in the structure of assets is occupied by cash (0.87% at the beginning of the year and 0.72% at the end), which in principle is good sign, since funds in accounts or in the cash register do not generate income, they must be available within a safe minimum. The presence of small amounts is the result of proper use of working capital. A slight change in cash balances in bank accounts is due to the balance of cash inflows and outflows.
A comparison of the amounts of accounts receivable and accounts payable shows that the excess of accounts payable over accounts receivable occurred only at the beginning of the period, but at the end of the period, accounts receivable already exceeded accounts payable, which is a sign of a good balance sheet in terms of increased efficiency.
The amount of net working capital (i.e., the difference between inventories, short-term receivables, cash, short-term financial investments and accounts payable (short-term and long-term debt) shows that the enterprise had its own funds during the analyzed period. Low share of long-term and short-term financial investments indicates the absence of diverted funds from core activities.
Analysis of the structure of the enterprise's liabilities.
Table 3.
Analytical grouping and analysis of balance sheet liability items
|
Liability balance |
At the beginning of the period |
At the end of the period |
Absolute deviation thousand rubles. |
Growth rate % |
||
|
1. Sources of all property |
||||||
|
1.1 Own capital |
||||||
|
1.2 borrowed capital |
||||||
|
1.2.1 Long-term liabilities |
||||||
|
1.2.2. Short-term loans and borrowings |
||||||
|
1.2.3 Accounts payable |
||||||
The main source of the formation of total assets of the enterprise in the analyzed period are own funds, the share of which in the balance sheet decreased from 72.34% to 70.69%, the share of borrowed funds accordingly increased from 27.66% to 29.31%, which indicates a possible financial instability of the enterprise and the increasing degree of dependence of the enterprise on external investors and creditors. During the analyzed period, there was an increase in equity capital by 52,166 thousand rubles. or growth amounted to 157.21% and borrowed capital by 24,564 thousand rubles. (170.46%). Own capital increased mainly due to an increase in additional capital and authorized capital while simultaneously reducing the amount of targeted financing and revenues. A decrease in the volume of targeted financing and revenues may indicate a loss of interest of investors (in particular, the state) in the activities of the enterprise.
The growth of borrowed capital occurred mainly due to an increase in the size of loans and credits by 10,943 thousand rubles. (177.5%) and accounts payable for 13,621 thousand rubles. (165.67%), which indicates the emergence of new obligations of the enterprise both to the bank and to other creditors.
Attracting borrowed funds into the turnover of an enterprise is a normal phenomenon. This contributes to a temporary improvement in financial condition, provided that they are not frozen in circulation for a long time and are returned in a timely manner. Otherwise, overdue accounts payable may arise, which ultimately leads to the payment of fines and a deterioration in financial condition.
Table 4.
Conventions.
|
Conditional designations |
Passive |
Legend |
|
Long-term financial investments
Inventories and costs Accounts receivable with a maturity of more than 12 months Accounts receivable with a maturity of less than 12 months Short-term financial investments Cash Other current assets |
3. Capital and reserves 4. Long-term liabilities 5. Short-term liabilities Short-term loans and borrowings Accounts payable Consumption funds Other current liabilities |
||
|
Balance |
Balance |
One of the most important characteristics of the financial condition of an enterprise is the stability of its activities in the light of a long-term perspective. It is related to the overall financial structure of the enterprise, the degree of its dependence on creditors and investors. Thus, many businessmen, including representatives of the public sector of the economy, prefer to invest a minimum of their own funds in the business and finance it with borrowed money. However, if the equity-debt structure is heavily skewed toward debt, the business may go bankrupt if multiple creditors simultaneously demand the money back at an “inconvenient time.”
Financial stability in the long term is characterized, therefore, by the ratio of equity and borrowed funds. However, this indicator provides only a general assessment of financial stability. Therefore, a system of indicators has been developed in world and domestic practice.
In market conditions, the balance sheet model, on the basis of which indicators reflecting the essence of financial stability are considered, has the form:
F + Z + (R.A. - Z) = Andc+ KT + kt + kr + rp, (1)
F- fixed assets and other non-current assets;
Z- inventories and costs;
(R.A.- Z) - cash, short-term financial investments, settlements (accounts receivable) and other assets;
ANDc- sources of own funds;
kt- short-term loans and borrowed funds;
KT- long-term and medium-term loans and borrowed funds;
kr + rp- settlements (accounts payable) and other short-term liabilities.
Considering that long-term loans and borrowed funds are used primarily for the purchase of fixed assets and capital investments, model (1) is transformed and has the following form:
Z + (R.A.- Z) = [(Andc+ KT) – F] + [ kt + kr + rp] (2)
From this we can conclude that, subject to the limitation of inventories and costs Z by the value [(ANDc+ KT) – F]:
Z£ [(ANDc+ KT) – F] (3)
the condition for the solvency of the enterprise will be met, i.e. cash, short-term financial investments (securities and other assets) will cover the short-term debt of the enterprise [ kt + kr + rp]:
(R.A.) > (kt + kr + rp) (4)
So, using the example of the analyzed balance:
at the beginning of the year 85896 > (14121+ 20742) – the condition is met,
at the end of the year 124150 > (25064 + 34363) – the condition is met.
The most general indicator of financial stability is the surplus or shortage of sources of funds for the formation of reserves and costs, obtained in the form of the difference in the value of sources of funds and the value of reserves and costs. This refers to the provision of certain types of sources (own, credit and other borrowed), since the sufficiency of the sum of all possible types of sources (including short-term accounts payable and other liabilities) is guaranteed by the identity of the totals of the asset and liability of the balance sheet.
The total amount of inventories and costs Z of the enterprise is equal to the sum of lines 210 and 220 of section II of the balance sheet asset.
To characterize the sources of reserves and costs, several indicators are used that reflect the different degrees of sufficiency of different types of sources:
1. availability of own working capital, equal to the difference in the value of sources of own funds and the value of non-current assets:
E c= Andc – F (5)
at the beginning of the year: E c = 91179 – 40146 = 51033 thousand rubles,
at the end of the year: E c = 143345 –78622 = 64723 thousand rubles.
2. the presence of own and long-term borrowed sources of formation of reserves and costs, obtained from the previous indicator by an increase in the amount of long-term and medium-term loans and borrowed funds:
E T= (Andc + KT) – F= E c +KT (6)
at the beginning of the year: E T = 51033 + 0 = 51033 thousand rubles,
at the end of the year: E T = 64723 + 0 = 64723 thousand rubles.
3. the total value of the main sources of reserves and costs, equal to the sum previous indicator and the amount of short-term loans and borrowings:
ES = (ANDc+ KT) – F + kt = E T + kt (7)
at the beginning of the year: E S = 51033 + 14121 = 65154 thousand rubles,
at the end of the year: E S = 64723 +25064 = 89787 thousand rubles.
If in formula (2) short-term debt is transferred to the left side of the balance sheet model, then the latter will take the following form:
RA – (kt + rp) + kr = (ANDc+ KT) – F (8)
On the left side of the equation we have the difference between the working capital of the enterprise and its short-term debt, on the right - the value of the E T indicator.
Three indicators of the availability of sources for the formation of reserves and costs (formulas 5-7) correspond to three indicators of the provision of reserves and costs with sources of their formation:
1. surplus (+) or shortage (-) of own working capital:
[ ± E c]= E c - Z (9)
at the beginning of the year: E c - Z = 51033 – 64629 = - 13596 thousand rubles. – lack of own working capital,
at the end of the year: E c - Z = 64723 – 78618 = - 13895 thousand rubles. – lack of own working capital.
2. excess (+) or deficiency (-) of own and long-term borrowed sources of formation of reserves and costs:
[ ± E T ]= E T - Z = (E c + KT) – Z (10)
at the beginning of the year: E T – Z = 51033 – 64629 = - 13596 thousand rubles. – lack of own and long-term sources for the formation of reserves and costs,
at the end of the year: E T – Z = 64723 – 78618 = - 13895 thousand rubles. – lack of own and long-term sources for the formation of reserves and costs.
3. surplus (+) or deficiency (-) of the total amount of the main sources for the formation of reserves and costs:
[ ± ES]= ES- Z = (E c + KT + kt) – Z (11)
at the beginning of the year: E S - Z = 65154 – 64629 = 525 thousand rubles. – lack of total value of the main sources for the formation of reserves and costs,
at the end of the year: E S - Z = 89787 – 78618 = 11169 thousand rubles. – lack of total sources for the formation of reserves and costs.
Calculation of three indicators of the provision of inventories and costs with sources of their formation allows us to classify financial situations according to the degree of their stability. When identifying the type of financial situation, the following three-component indicator is used:
S = { S(± Ec), S(± ET), S(± ES)}, (12)
where the function S(X) is defined as follows:
ì 1 if x³ 0
S(X) = í (13)
î 0 if x<0
For the entire analyzed period, the three-component indicator had the following form: S = (0, 0, 1)
ì [ ± E c] < 0
í [ ± E T] < 0 (14)
î [ ± ES] > 0
Table 5.
Analysis of financial stability.
|
Indicators |
Conditional designations |
Start period |
At the end of the period |
Changes period |
|
1. Source of own funds |
||||
|
2. Fixed assets and investments |
||||
|
3. Availability of own working capital |
||||
|
4. Long-term loans and borrowed funds |
||||
|
5. Availability of own and long-term borrowed sources of formation of reserves and costs |
||||
|
6. Short-term loans and borrowed funds |
||||
|
7. The total value of the main sources of reserves and costs |
||||
|
8. Total inventory and costs |
||||
|
9. Surplus (+) or deficiency (-) of own working capital |
||||
|
10. Excess (+) or deficiency (-) of own and long-term borrowed sources of inventories and costs |
||||
|
11. Excess (+) or deficiency (-) of the total amount of the main sources of reserves and costs |
||||
|
12. Three-component indicator of the type of financial situation |
The three-component indicator of the type of financial situation characterizes an unstable financial condition associated with a violation of solvency, in which, nevertheless, it remains possible to restore balance by replenishing sources of own funds and increasing one’s own working capital, as well as by additionally attracting long-term and medium-term loans and borrowed funds.
Financial instability is considered normal (acceptable) in this situation if the amount of short-term loans and borrowed funds attracted for the formation of inventories and expenses does not exceed the total cost of inventories and finished products (the most liquid part of inventories and expenses), i.e. Conditions are met:
Z 1 + Z 4 ³ Kt - [ ± ES] (15)
Z 2 + Z 3 £ ET
where: Z 1 – production inventories (p. 211);
Z 2 – work in progress (p. 213);
Z 3 – deferred expenses (p. 216);
Z 4 – finished products and shipped goods (p. 214 + p. 215);
(Kt - [±E S ]) – part of short-term loans and borrowed funds involved in the formation of inventories and costs.
If conditions (15) are not met, then financial instability is abnormal and reflects a tendency towards a significant deterioration in financial condition.
Let's check the financial instability of the enterprise for normality:
Beginning of period:
6516 + 62 + 1039 < 14121 – 525
57011 + 0 > 51033
abnormal financial instability at the beginning of the period.
End of period:
19326 + 418 + 2506 > 25064 – 11169
22250 > 13895
56368 < 64723
By the end of the period, normal financial instability had established in the analyzed enterprise, which reflects a trend towards improving financial condition.
Along with optimizing the structure of liabilities in our situation, sustainability can be restored through a reasonable reduction in inventory levels and costs.
To restore sustainability, it is necessary to in-depth study the reasons for changes in inventories and costs, turnover of current assets, the availability of own working capital, as well as reserves for reducing long-term and current tangible assets, accelerating the turnover of funds, and increasing own working capital. Then, based on the current situation, a number of measures can be recommended, for example:
- justified reduction of inventories and costs (to the standard);
- replenishment of own working capital from internal and external sources.
The most risk-free way to replenish the sources of reserve formation should be recognized as an increase in real equity capital through the accumulation of retained earnings or through the distribution of after-tax profits into accumulation funds, subject to the growth of the part of these funds not invested in non-current assets. A decrease in inventory levels occurs as a result of planning inventory balances, as well as the sale of unused inventory items.
Analysis of financial sustainability ratios.
Next, financial ratios are calculated, which make it possible to study trends in changes in the stability of the position of a given enterprise, as well as to produce comparative analysis based on the reports of several competing firms. These include:
1. Autonomy coefficient, characterizing the independence of the enterprise from borrowed sources of funds, it is equal to the share of equity capital in the total balance sheet.
K a = I s / B (16)
For the analyzed enterprise, the value of the autonomy coefficient is:
for the beginning of the year - K a = 91179 / 126042 = 0,723
at the end of the year - K a = 143345 / 202772 = 0,706
The normal minimum value of the coefficient is estimated at 0.5, which means that all the obligations of the enterprise can be covered by its own funds. The value of this coefficient for the analyzed enterprise exceeds normative meaning, however, its decrease reflects a tendency to increase the enterprise’s dependence on borrowed sources of financing economic circulation and is therefore assessed negatively.
2. Debt to equity ratio equal to the ratio of the amount of the enterprise's liabilities to the amount of its own funds.
K s/s = (B – I s) / I s (17)
For the analyzed enterprise, the value of the ratio of equity and borrowed funds:
at the beginning of the year - Kw/s = (126042 – 91179) / 91179 = 0.38
at the end of the year - K salary = (202772 – 143345) / 143345 = 0.415
The relationship between the autonomy coefficient and the debt/equity ratio can be expressed as follows:
K z/s = 1 / K a – 1 (18)
from which follows the normal restriction for the ratio of borrowed and equity funds K z / c £ 1. This condition for the analyzed enterprise is satisfied both at the beginning and at the end of the year. The growth of this indicator reflects a trend toward an increase in the share of the enterprise’s liabilities in the balance sheet structure, which means an increase in the enterprise’s financial dependence on borrowed sources.
With an increase in the share of borrowed funds, the enterprise loses stability, because:
- an increasingly large part of the capital belongs not to the enterprise, but to creditors who can dictate their terms;
- The higher the share of borrowed funds, the less likely it is to receive funds from additional sources of financing: financial organizations“they won’t give any more”, and it will not be possible to increase equity capital by issuing shares, since shareholders will have great doubts about paying dividends due to the need to pay high interest on borrowed funds.
3. Ratio of mobile and immobilized assets calculated by the formula.
K m/i =R.A. / F (19)
For the analyzed enterprise, the ratio of mobile and immobilized assets is:
at the beginning of the year - K m/i = 85896 / 40146 = 2.14
at the end of the year - K m/i = 124150 / 78618 = 1.58
The value of this indicator in to a greater extent due to industry-specific features of the circulation of funds. A sharp decrease in this ratio is a consequence of changes in the structure of non-current and current assets of the enterprise.
Combining these restrictions, we obtain the final form of the normal restriction for the debt-to-equity ratio:
K a / c£ min(1, Km/i) (20)
4. Maneuverability coefficient equals the ratio of the enterprise’s own working capital to the total amount of sources of own funds.
K m = E s / I s (21)
For the analyzed enterprise, the agility coefficient is:
at the beginning of the year - K m = 51033 / 91179 = 0.56
at the end of the year - K m = 64723 / 143345 = 0.452
It shows how much of the organization's equity capital is in mobile form, allowing relatively free maneuvering of capital. High values of the agility coefficient positively characterize the financial condition, however, there are no normal values of the indicator established in practice. A value of 0.5 can be considered as an average guideline for optimal coefficient levels.
5.Coefficient of supply of inventories and costs from own sources, equal to ratio the amount of own working capital to the cost of inventories and costs of the enterprise.
K o = E s /Z (22)
For the analyzed enterprise, the ratio of supply of inventories and costs from own sources:
at the beginning of the year - K o = 51033 / 64629 = 0.79
at the end of the year - K o = 64723 / 78618 = 0.82
For industrial enterprises the normal limitation of the indicator has the following form: k o ³ 0.6 ¸ 0.8. In addition, the coefficient of supply of inventories and costs from its own sources should be limited from below by the values of the autonomy coefficient so that the organization does not find itself on the verge of bankruptcy: k o ³ k a. For the analyzed enterprise, this condition is met.
6. Industrial property ratio, equal to the ratio of the sum of the costs of fixed assets, capital investments, equipment, inventories and work in progress to the total balance sheet - net (that is, minus losses, debt of the founders for contributions to the management company, the cost of shares purchased from shareholders).
To the address = (F1 + F2 + F3 + Z1 + Z2) / B (23)
where F1 – fixed assets,
F2 – capital investments,
F3 – equipment,
Z1 – production inventories,
Z2 – work in progress.
For the analyzed enterprise, the coefficient of property for production purposes:
at the beginning of the year - To p.im. = (40146 + 6516 +57011) / 126042 = 0.823
at the end of the year - To p.im. = (78622 + 19326 + 56368) / 202772 = 0.761
The following indicator limitation is considered normal:
Kp.m.³ 0,5 (24)
The calculated indicators correspond to the normal value, however, during the analyzed period there was a tendency towards a decrease in this value. This is a negative sign, because if the indicator decreases below the critical limit, it is necessary to replenish equity capital (for example, by increasing the authorized capital, which is possible and the enterprise tried to do, since the authorized capital of the enterprise increased during the analyzed period) or attracting long-term borrowed funds to increase production property, if the financial results in the reporting period do not significantly replenish the sources of own funds.
7. Long-term leverage ratio, equal to the ratio of the amount of long-term loans and borrowed funds to the amount of the enterprise’s own funds and long-term loans and borrowings.
To d.pr. = CT / (I s + CT) (25)
It allows you to approximately estimate the share of borrowed funds when financing capital investments. For the analyzed enterprise, the coefficient of long-term borrowing will be equal to 0, since the enterprise does not use long-term sources of financing in its activities.
8. Short-term debt ratio expresses the share of the enterprise's short-term liabilities in the total amount of liabilities.
lK.Z = (Pt – fp) / (KT + Pt) (26)
For the analyzed enterprise, the short-term debt ratio is:
at the beginning of the year - l K.Z = (14121 – 0) / (0 + 14121) = 1
at the end of the year - l K.Z = (25064 – 0) / (0 + 25064) = 1
Based on the calculated coefficients, we can conclude that the company’s liabilities are short-term in nature. This creates certain difficulties for the enterprise. The balance between the sizes of receivables and payables is disrupted, since receivables are distributed between long-term and short-term (and the share of long-term is greater), and payables are exclusively short-term in nature.
9. Coefficient of autonomy of sources of stock formation and costs shows the share of own working capital in the total amount of the main sources of reserves and costs.
aa.Z= E s / (E s +Kt + KT) (27)
For the analyzed enterprise, the coefficient of autonomy of sources of formation of reserves and costs:
at the beginning of the year - a a.З = 51033 / (51033 + 14121 + 0) = 0.783
at the end of the year - a a.З = 64723 / (64723 + 25064 + 0) = 0.761
10. Accounts payable and other liabilities ratio shows the share of accounts payable and other liabilities in the total liabilities of the enterprise.
bK.Z = (kr + rp) / (KT + Pt) (28)
For the analyzed enterprise, the ratio of accounts payable and other liabilities:
at the beginning of the year - b K.Z = (20742 + 0) / (0 + 14121) = 1.47
at the end of the year - b K.Z = (34363 + 0) / (0 + 25064) = 1.371
Table 6
Coefficients characterizing the financial stability of the enterprise.
|
Financial ratios |
Conditional designations |
Restrictions |
To the beginning of the year |
Finally of the year |
Changes in a year |
|
Autonomy coefficient |
|||||
|
Debt to equity ratio |
|||||
|
Ratio of mobile and immobilized assets |
£ min(1, K m/i) |
||||
|
Maneuverability coefficient |
|||||
|
Security ratio inventories and costs |
|||||
|
Property ratio industrial purposes |
|||||
|
Long term coefficient raising borrowed funds |
|||||
|
Short-term debt ratio |
|||||
|
Autonomy coefficient sources of formation |
|||||
|
Accounts payable and other liabilities ratio |
Values of indicators of the structure of sources of funds (l K.Z , b K.Z), among other things, also lies in the fact that they are also used in the interrelation of individual indicators of liquidity of financial stability, on the basis of which conclusions are drawn about positive dynamics basic financial ratios.
Analysis of balance sheet liquidity.
Balance sheet liquidity is defined as the degree to which an enterprise's liabilities are covered by its assets, the period of transformation of which into cash corresponds to the period of repayment of liabilities.
Depending on the degree of liquidity, i.e. the rate of conversion into cash, the assets of the enterprise are divided into the following groups:
A1. The most liquid assets are cash and short-term financial investments:
A1 = d + ft (29)
For the analyzed enterprise, the most liquid assets are:
at the beginning of the year – A1 = 588 thousand rubles.
at the end of the year – A1 = 1074 thousand rubles.
A2. Quickly realizable assets – accounts receivable, the repayment period of which is expected within 12 months and other current assets:
A2 = dt + ra (30)
For the analyzed enterprise, quickly realizable assets:
at the beginning of the year - A2 = 19,749 thousand rubles.
at the end of the year - A2 = 41981 thousand rubles.
A3. Slowly selling assets – the remaining items of Section II plus the item “Long-term financial investments” from Section I:
A3 = RA – A1 – A2 + fT = Z + dT + fT (31)
Where fT- long-term financial investments.
For the analyzed enterprise, slowly sold assets:
at the beginning of the year - A3 = 85896 – 1102 – 19749 + 0 = 65045 thousand rubles.
at the end of the year - A3 = 124150 – 1462 – 41981 + 3634 = 84341 thousand rubles.
A4. Hard-to-sell assets – articles of Section I minus long-term financial investments:
A4 = F - fT (32)
For the analyzed enterprise, assets that are difficult to sell are:
at the beginning of the year - A4 = 40146 thousand rubles.
at the end of the year - A4 = 74988 thousand rubles.
Balance sheet liabilities are grouped according to the urgency of their payment:
P1. The most urgent liabilities are accounts payable and other short-term liabilities:
P1 =Pt – Kt - fP (33)
For the analyzed enterprise, the most urgent obligations are:
at the beginning of the year - P1 = 20,742 thousand rubles.
at the end of the year - P1 = 34363 thousand rubles.
P2. Short-term liabilities – short-term loans and borrowings:
P2 = Kt (34)
For the analyzed enterprise, short-term liabilities:
at the beginning of the year – P2 = 14121 thousand rubles.
at the end of the year - P2 = 25064 thousand rubles.
P3. Long-term and medium-term liabilities – long-term loans and borrowings:
P3 = KT (35)
For the analyzed enterprise, long-term and medium-term liabilities:
at the beginning of the year – P3 = 0
at the end of the year – P3 = 0
P4. Constant liabilities – sources of own funds:
P4 = Ic= And +fp (36)
For the analyzed enterprise, permanent liabilities:
at the beginning of the year – P4 = 91179 thousand rubles.
at the end of the year - P4 = 143345 thousand rubles.
Grouping of assets and liabilities of an enterprise by degree of liquidity.
Table 7.
|
beginning of the year |
the end of the year |
beginning of the year |
the end of the year |
Payment surplus or deficiency |
As a % of the group total |
||||
|
beginning of the year |
the end of the year |
beginning of the year |
the end of the year |
||||||
|
The most liquid assets of A1 |
Most urgent obligations P1 |
||||||||
|
Quickly realizable assets A2 |
Short-term liabilities P2 |
||||||||
|
Slowly selling assets A3 |
Long-term liabilities P3 |
||||||||
|
Hard to sell assets A4 |
Constant liabilities P4 |
||||||||
Columns 7 and 8 present the absolute values of payment surpluses or deficiencies at the beginning and end of the reporting period:
Dj = Aj- Pj , j = 1, ….., 4, (37)
In columns 9 and 10 - respectively their values, taken as a percentage of the totals of the liability groups:
Dj/ Pj* 100 = (Aj- Pj) / Pj * 100 (38)
To determine the liquidity of the balance sheet, you should compare the results of the given groups for assets and liabilities. The balance is considered absolutely liquid if the following ratios exist:
ì A1³ P1
í A2³ P2 (39)
ï A3³ P3
î A4£ P4
In the analyzed balance sheet, the first inequality of system (39) has the sign opposite to that fixed in the optimal variant; the liquidity of the balance sheet differs from absolute. At the same time, it is impossible to talk about compensating for a lack of funds in one group of assets with an excess in another group, since compensation in this case takes place only in value, and in a real payment situation, less liquid assets cannot replace more liquid ones. Thus, we can conclude that the balance sheet is low, the enterprise’s low ability to fulfill its short-term (current) obligations, i.e. pay “invoices”.
Comparison of the most liquid funds and quickly realizable assets with the most urgent obligations and short-term liabilities allows you to find out current liquidity. Comparison of slowly selling assets with long-term liabilities reflects promising liquidity. Current liquidity indicates the solvency (or insolvency) of the enterprise for the period of time closest to the moment under consideration. Prospective liquidity is a forecast of solvency based on a comparison of future receipts and payments (of which only a part is represented in the corresponding groups of assets and liabilities, so the forecast is quite approximate).
For a comprehensive assessment of balance sheet liquidity as a whole, it is used general liquidity ratio, calculated by the formula:
fl = (a 1 A1+a 2 A2+a 3 A3) / (a 1 P1 +a 2 P2 +a 3 P3) (40)
Where aj – weighting coefficients that are subject to the following restrictions:
ì a 1 > a 2 + a 3
í a 2 > a 3 (41)
î a 3 > 0
In Western accounting and analytical practice, the critical lower value of the indicator is given - 2, but this is only an approximate value, indicating its order, but not its exact normative value. The overall balance sheet liquidity indicator shows the ratio of the sum of all liquid funds of the enterprise to the sum of all payment obligations (both short-term and long-term), provided that various groups liquid funds and payment obligations are included in the indicated amounts with weighting coefficients that take into account their dependence in terms of the timing of receipt of funds and repayment of obligations.
Using the general liquidity indicator, changes in the financial situation of the enterprise are assessed from the point of view of liquidity. This indicator is also used when choosing the most reliable partner from several potential partners based on reporting.
Let a 3 = 0.2; a2 = 0.3; a 1 = 0.5, then the value of the overall liquidity indicator for the analyzed enterprise will be:
at the beginning of the year – fl=
at the end of the year - fl=
This ratio shows how many rubles of the enterprise’s current assets are per ruble of current liabilities. During the analyzed period, the overall liquidity indicator of the enterprise decreased slightly (0.11).
However, the general liquidity indicator does not give an idea of the enterprise’s capabilities in terms of repaying short-term obligations. Therefore, to assess the solvency of an enterprise, the following indicators are used:
1.absolute liquidity ratio, is the most stringent liquidity criterion, showing what part of short-term debt obligations can be repaid immediately. It is determined by the ratio of the most liquid funds to the amount of the most urgent obligations and short-term liabilities.
K a . l . = (d + ft) / (Pt – fp) (42)
For the analyzed enterprise, the absolute liquidity ratio is:
at the beginning of the year – K AL =
at the end of the year - K AL =
The normal limit for this indicator is:
TOa.l³ 0,2 (43)
This condition is not met. The value of the indicator equal to 0.02 means that every day 2% of the enterprise’s short-term liabilities are subject to repayment or, in other words, in the case of maintaining the cash balance at the level of the reporting date (mainly by ensuring a uniform receipt of payments from counterparties) short-term debt that occurs at the reporting date can be repaid in 50 days (1 / 0.02).
It should be noted that the level of the absolute liquidity ratio itself is not a sign of poor or good solvency. When assessing its level, it is necessary to take into account the rate of turnover of funds in current assets and the rate of turnover of short-term liabilities. If means of payment turn over faster than the period of possible deferment of payment obligations, then the solvency of the enterprise will be normal. At the same time, a constant chronic lack of cash leads to the fact that the enterprise becomes chronically insolvent, and this can be regarded as the first step on the path to bankruptcy.
The main factor in increasing the level of absolute liquidity is the uniform repayment of receivables.
2. liquidity ratio (intermediate coverage ratio) can be obtained from the previous indicator by adding accounts receivable and other assets to the numerator:
Kl= (d + dt + ft + ra) / (Pt – fp) (44)
For the analyzed enterprise, the liquidity ratio is:
at the beginning of the year – K l =
at the end of the year - K l =
The liquidity ratio (intermediate coverage ratio) shows what part of the current debt the organization can cover in the near future, subject to full repayment of receivables. The estimate of the lower normal bound for the liquidity ratio is:
Kl³ 0,8 ¸ 1,0 (45)
The obtained values do not satisfy the given restrictions, in addition, even the emerging trend towards an increase in this ratio does not characterize the company on the positive side, since the increase in the value of the ratio was mainly associated with an increase in accounts receivable.
To increase the level of the ratio, it is necessary to promote an increase in the provision of inventories with own working capital and to reasonably reduce the level of inventories. The value of this particular coefficient most accurately reflects the current solvency of the enterprise.
3.coverage ratio equal to the ratio of the cost of all mobile (working) assets of the enterprise (less deferred expenses) to the amount of short-term liabilities:
KP= R.A. / (Pt – fp) (46)
For the analyzed enterprise, the coverage ratio is:
at the beginning of the year – Kp=
at the end of the year - Kp=
The coverage ratio shows the payment capabilities of the enterprise, assessed subject to not only the timeliness of settlements with debtors and favorable sales of finished products, but also the sale, if necessary, of other elements of material current assets. In contrast to the absolute liquidity ratio and the intermediate coverage ratio, which show instantaneous and current solvency, the coverage ratio reflects the forecast of solvency for a relatively long term. The following limitation is considered normal for the coverage ratio:
KP³ 2 (47)
During the analyzed period, the coverage ratio decreased, but remained above the norm. To increase the level of the coverage ratio, it is necessary to replenish the enterprise's own capital and reasonably restrain the growth of non-current assets and long-term receivables.
Table 8.
Analysis of financial ratios
|
Financial ratios |
Conditional designation |
restrictions |
Beginning of period |
End of period |
Changes over the period |
|
General liquidity ratio |
|||||
|
Absolute liquidity ratio |
|||||
|
Liquidity ratio |
|||||
|
Coverage ratio |
Conclusions and proposals for further development of the analyzed enterprise.
During the reporting period, at the analyzed enterprise, the size of the balance sheet currency, which is the main indicator of the property “power” of the enterprise, increased significantly, however, the structure of the balance sheet itself became more “heavy”, and therefore more sensitive to revenue, although at the same time due to an increased share of depreciation charges in the cost structure, an enterprise can have money without having profit (since the sources of cash flow from core activities are profit and depreciation).
The largest part of non-current assets is represented by production fixed assets and unfinished construction, which characterizes the enterprise's orientation towards creating material conditions for expanding the main activities of the enterprise. High indicators for the growth of long-term financial investments reflect the financial and investment development strategy. On the one hand, increasing capacity and making long-term investments of funds is a good sign, indicating the enterprise’s desire to work for the future; on the other hand, carrying out such operations in conditions of an unstable financial condition can lead the enterprise to “freezing” funds, and, consequently, worsen the financial condition enterprises. Certain concerns are also caused by a significant increase in the cost of raw materials and supplies while reducing the level of work in progress.
However, there are also positive aspects. For example, a low share of long-term and short-term financial investments indicates the absence of diverted funds from core activities.
An increase in the share of borrowed funds in the structure of an enterprise's liabilities indicates an increase in the degree of dependence of the enterprise on external investors and creditors. A decrease in the volume of targeted financing and revenue may indicate a loss of interest of investors (in particular, the state) in the activities of the enterprise. In addition, a negative symptom is large share debts to the budget and extra-budgetary funds, which may lead to the application of sanctions from government agencies(blocking an account, imposing penalties on property). In addition, delays in payments on these payments also entail penalties, such as the accrual of penalties, interest rates which are quite high.
The three-component indicator of the type of financial situation characterizes an unstable financial condition, however, by the end of the reporting period, the enterprise managed to reach a normal level of financial instability from an abnormal level, which means that the enterprise, as a whole, improved its condition, although largely due to an increase in its own funds, rather than sales of products .
Thus, financial instability has become normal and reflects a trend towards improving financial health.
In addition, it should be noted the low liquidity of the balance sheet, i.e. the low ability of the enterprise to fulfill its short-term (current) obligations, i.e. pay “invoices”.
In this situation, the company should develop a program to restore normal solvency, as well as to increase the liquidity of the balance sheet, since the current financial condition leaves much to be desired. A number of measures can be recommended, for example:
- acceleration of capital turnover in current assets, which will result in a relative reduction in turnover per ruble;
- justified reduction of inventories and costs (to the standard);
- replenishment of own working capital from internal and external sources;
- the most risk-free way to replenish the sources of reserve formation should be recognized as an increase in real equity capital through the accumulation of retained earnings or through the distribution of after-tax profits into accumulation funds, subject to the growth of the part of these funds not invested in non-current assets;
- uniform repayment of accounts receivable. To implement this measure, it is necessary to find new ways to collect receivables, such as mutual offsets, reducing the provision of deferred payments, selling overdue receivables to banks (factoring);
- raising funds to pay off debts to the budget and extra-budgetary funds;
- in order to reduce costs and increase the efficiency of main production, it is advisable in some cases to abandon certain types of activities serving the main production (construction, repairs, transport, etc.) and switch to services specialized organizations, it is necessary to consider the possibility of leasing such auxiliary production facilities;
- if an enterprise makes a profit, but is still left with low solvency, it is necessary to analyze the use of profits, so contributions to the consumption fund can be considered as a potential reserve for replenishing the enterprise’s own working capital;
- conducting marketing analysis to study supply and demand, sales markets and forming on this basis the optimal range and structure of product production, possibly even searching for new suppliers;
- In order to reduce the deficit of its own working capital, a joint-stock enterprise may try to replenish it by issuing and placing new shares and bonds. However, it must be borne in mind that the issue of new shares may lead to a fall in their value and this may cause bankruptcy. Therefore in Western countries most often they resort to issuing convertible bonds with a fixed percentage of income and the possibility of exchanging them for shares of the enterprise.
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