The negative value of the coefficient of financial leverage. Financial leverage (financial leverage)
For any enterprise, the priority is the rule that both own and borrowed funds must provide a return in the form of profit (income). The action of financial leverage (leverage) characterizes the feasibility and effectiveness of the use of borrowed funds by the enterprise as a source of financing economic activity.
The effect of financial leverage is that the company, using borrowed funds, changes the net profitability of own funds. This effect arises from the discrepancy between the profitability of assets (property) and the "price" of borrowed capital, i.e. average bank rate. At the same time, the enterprise must provide for such a return on assets so that Money was enough to pay interest on the loan and pay income tax.
It should be borne in mind that the average calculated interest rate does not coincide with the interest rate accepted under the terms of the loan agreement. The average settlement rate is set according to the formula:
SP \u003d (FIk: amount of AP) X100,
joint venture - the average settlement rate for a loan;
Fick - actual financial costs for all loans received for the billing period (the amount of interest paid);
AP amount - the total amount of borrowed funds attracted in the billing period.
The general formula for calculating the effect of financial leverage can be expressed as:
EGF \u003d (1 - Ns) X(Ra - SP) X(GK:SK),
EGF - the effect of financial leverage;
Ns – income tax rate in fractions of a unit;
Ra – return on assets;
joint venture - average calculated interest rate for a loan in %;
ZK - borrowed capital;
SC - equity.
The first component of the effect is tax corrector (1 - Hs), shows the extent to which the effect of financial leverage is manifested in connection with different levels of taxation. It does not depend on the activities of the enterprise, since the income tax rate is approved by law.
In the process of managing financial leverage, a differentiated tax corrector can be used in cases where:
on various types activities of the enterprise differentiated tax rates are established;
for certain types of activities, enterprises use income tax benefits;
individual subsidiaries (branches) of the enterprise operate in free economic zones both in their own country and abroad.
The second component of the effect is differential (Ra - SP), is the main factor that forms the positive value of the effect of financial leverage. Condition: Ra > SP. The higher the positive value of the differential, the more significant, other things being equal, the value of the effect of financial leverage.
Due to the high dynamism of this indicator, it requires systematic monitoring in the management process. The dynamism of the differential is due to a number of factors:
during a period of deterioration in the financial market, the cost of borrowing funds may increase sharply and exceed the level accounting profit generated by the assets of the enterprise;
the decrease in financial stability, in the process of intensive attraction of borrowed capital, leads to an increase in the risk of bankruptcy of the enterprise, which makes it necessary to increase interest rates for a loan, taking into account the premium for additional risk. The financial leverage differential can then be reduced to zero or even to a negative value. As a result, profitability equity will decrease, because part of the profit it generates will be used to service the debt received at high interest rates;
during the worsening of the situation commodity market, reduction in sales volume and accounting profit negative meaning differential can be formed even at stable interest rates due to lower return on assets.
Thus, the negative value of the differential leads to a decrease in the return on equity, which makes its use inefficient.
The third component of the effect is debt ratio or financial leverage (GK: SK) . It is a multiplier that changes the positive or negative value of the differential. With a positive value of the differential, any increase in the debt ratio will lead to an even greater increase in the return on equity. With a negative value of the differential, the increase in the debt ratio will lead to an even greater drop in the return on equity.
So, with a stable differential, the debt ratio is the main factor affecting the return on equity, i.e. it generates financial risk. Similarly, with a fixed debt ratio, a positive or negative value of the differential generates both an increase in the amount and level of return on equity, and the financial risk of losing it.
Combining the three components of the effect (tax corrector, differential and debt ratio), we obtain the value of the effect of financial leverage. This method of calculation allows the company to determine the safe amount of borrowed funds, that is, acceptable lending conditions.
To realize these favorable opportunities, it is necessary to establish the relationship and contradiction between the differential and the debt ratio. The fact is that with an increase in the amount of borrowed funds, the financial costs of servicing the debt increase, which, in turn, leads to a decrease in the positive value of the differential (with a constant return on equity).
From the above, the following can be done conclusions:
if new borrowing brings to the enterprise an increase in the level of the effect of financial leverage, then it is beneficial for the enterprise. At the same time, it is necessary to control the state of the differential, since with an increase in the debt ratio, a commercial bank is forced to compensate for the increase in credit risk by increasing the “price” of borrowed funds;
the creditor's risk is expressed by the value of the differential, since the higher the differential, the lower the bank's credit risk. Conversely, if the differential becomes less than zero, then the leverage effect will act to the detriment of the enterprise, that is, there will be a deduction from the return on equity, and investors will not be willing to buy shares of the issuing enterprise with a negative differential.
Thus, an enterprise's debt to a commercial bank is neither good nor evil, but it is its financial risk. By attracting borrowed funds, an enterprise can more successfully fulfill its tasks if it invests them in highly profitable assets or real investment projects with a quick return on investment.
The main task for a financial manager is not to eliminate all risks, but to take reasonable, pre-calculated risks, within the positive value of the differential. This rule is also important for the bank, because a borrower with a negative differential is distrustful.
Financial leverage is a mechanism that a financial manager can master only if he has accurate information about the profitability of the company's assets. Otherwise, it is advisable for him to treat the debt ratio very carefully, weighing the consequences of new borrowings in the loan capital market.
The second way to calculate the effect of financial leverage can be viewed as a percentage (index) change in net profit per ordinary share, and the fluctuation in gross profit caused by this percentage change. In other words, the effect of financial leverage is determined by the following formula:
leverage strength = percentage change in net income per ordinary share: percentage change in gross income per ordinary share.
The smaller the impact of financial leverage, the lower the financial risk associated with this enterprise. If borrowed funds are not involved in circulation, then the force of the financial leverage is equal to 1.
The greater the force of financial leverage, the higher the company's level of financial risk in this case:
for a commercial bank, the risk of non-repayment of the loan and interest on it increases;
for the investor, the risk of reducing dividends on the shares of the issuing enterprise owned by him increases from high level financial risk.
The second method of measuring the effect of financial leverage makes it possible to perform an associated calculation of the strength of the impact of financial leverage and establish the total (general) risk associated with the enterprise.
In terms of inflation if the debt and interest on it are not indexed, the effect of financial leverage increases, since debt servicing and the debt itself are paid for with already depreciated money. It follows that in an inflationary environment, even with a negative value of the differential of financial leverage, the effect of the latter can be positive due to non-indexation of debt obligations, which creates additional income from the use of borrowed funds and increases the amount of equity capital.
Let's assume that there are two enterprises with the same level of economic profitability and the same value of assets. However, only own funds are used as sources of financing for the first enterprise, and own and borrowed funds for the second.
There is a situation in which, with the same economic profitability, due to differences in the structure of financing, different meanings profitability own funds(RSS). This difference in these performance indicators of the two organizations is called the "financial leverage effect".
How sources of funding for activities affect profitability
The effect of financial leverage (EFF) is an increase in the value of the return on equity, which occurs as a result of the use of loans, despite their payment. From this follows two conclusions:
1) An enterprise that uses only its own funds in its activities, without resorting to the services of credit institutions, keeps their profitability within the value of RCC \u003d (1-T) * ER, where T is the value of the interest rate of income tax.
2) An enterprise that uses funds received on credit to carry out its activities changes the RCC - increases or decreases it depending on the size of the interest rate and the ratio of the shares of borrowed and own funds. In such situations, there is such a phenomenon as the effect of financial leverage.
RSS=(1-T)*ER+EFR
To determine the value of the EFR, it is necessary to find the value of the indicator called the average interest rate (SIR). This indicator is found as the ratio of the existing financial costs of credit funds to the total amount of funds taken on credit by the enterprise.
Components of the effect of financial leverage
The effect of financial leverage is formed by two components:
1. Differential: (1-T)*(ER-SRSP).
2. The leverage of financial leverage, which is found as the ratio of borrowed funds to own.
The formula for calculating the EGF is determined by the product of these two components.
Basic Rules
1. The effect of financial leverage shows whether the loan will be beneficial for the enterprise. Positive value EGF indicator means that borrowing will be beneficial for the organization and expedient.
2. Attracting an additional loan increases the value of the leverage indicator, and accordingly, the risk of non-repayment of borrowed funds also increases. This is offset by an increase in the interest rate on loans. Consequently, the average calculated interest rate also increases.
3. The effect of financial leverage also determines whether the enterprise has the opportunity to attract additional credit funds in an emergency. To do this, you need to monitor the value of one of its components - the differential. The differential must be positive, and some margin of safety must be maintained for this indicator.
Financial leverage is considered to be the potential opportunity to manage the profit of the organization by changing the amount and components of capitalown and borrowed.
Financial leverage (leverage) is used by entrepreneurs when the goal arises to increase the income of the enterprise. After all, it is financial leverage that is considered one of the main mechanisms for managing the profitability of an enterprise.
In the case of using such a financial instrument, the company attracts borrowed money by making credit transactions, this capital replaces its own capital and all financial activities are carried out only with the use of credit money.
But it should be remembered that in this way the enterprise significantly increases its own risks, because regardless of whether the invested funds brought profit or not, it is necessary to pay on debt obligations.
When using financial leverage, one cannot ignore the effect of financial leverage. This indicator is a reflection of the level of additional profit on the equity capital of the enterprise, taking into account the different share of the use of credit funds. Often, when calculating it, the formula is used:
EFL \u003d (1 - Cnp) x (KBRa - PC) x ZK / SK,
where
- EFL- effect of financial leverage, %;
- Cnp- income tax rate, which is expressed as a decimal fraction;
- KBPa- coefficient of gross profitability of assets (characterized by the ratio of gross profit to the average value of assets),%;
- PC- the average amount of interest on the loan, which the company pays for the use of attracted capital,%;
- ZK- the average amount of attracted capital used;
- SC- the average amount of own capital of the enterprise.
Components of financial leverage
This formula has three main components:
1. Tax corrector (1-Cnp)- a value indicating how the EFL will change when the level of taxation changes. The enterprise has practically no effect on this value, tax rates are set by the state. But financial managers can use a change in the tax corrector to obtain the desired effect in the event that some branches (subsidiaries) of the enterprise are subject to different tax policies due to territorial location, activities.
2.Financial leverage differential (KBRa-PC). Its value fully reveals the difference between the gross return on assets and the average interest rate on a loan. The higher the value of the differential, the greater the likelihood of a positive effect from the financial impact on the enterprise. This indicator is very dynamic, constant monitoring of the differential will allow you to control the financial situation and not miss the moment of reducing the profitability of assets.
3. Financial leverage ratio (LC/LC), which characterizes the amount of credit capital attracted by the enterprise, per unit of equity. It is this value that causes the effect of financial leverage: positive or negative, which is obtained due to the differential. That is, a positive or negative increase in this coefficient causes an increase in the effect.
The combination of all the components of the effect of financial leverage will allow you to determine exactly the amount of borrowed funds that will be safe for the enterprise and will allow you to get the desired increase in profits.
Financial leverage ratio
The leverage ratio shows the percentage of borrowed funds in relation to the company's own funds.
Net borrowings are bank loans and overdrafts minus cash and other liquid resources.
Equity is represented by the balance sheet value of shareholders' funds invested in the company. This is the issued and paid-in authorized capital, accounted for at the nominal value of shares, plus accumulated reserves. The reserves are the retained earnings of the company since incorporation, as well as any increment resulting from the revaluation of property and additional capital, where available.
It happens that even listed companies have a leverage ratio of more than 100%. This means that lenders provide more financial resources for the operation of the company than the shareholders. In fact, there have been exceptional cases where listed companies had a leverage ratio of around 250% - temporarily! This may have been the result of a major takeover that required significant borrowing to pay for the acquisition.
In such circumstances, however, it is highly likely that the Chairman's report presented in the annual report contains information on what has already been done and what remains to be done in order to significantly reduce the level of financial leverage. In fact, it may even be necessary to sell some lines of business in order to reduce leverage to an acceptable level in a timely manner.
The consequence of high financial leverage is a heavy burden of interest on loans and overdrafts, which are charged to the profit and loss account. In the face of deteriorating economic conditions, profits may well be under a double yoke. There may be not only a reduction trading revenue but also rising interest rates.
One way to determine the impact of financial leverage on profits is to calculate the interest coverage ratio.
The rule of thumb is that the interest coverage ratio should be at least 4.0, and preferably 5.0 or more. This rule should not be neglected, because the loss of financial well-being can become a retribution.
Leverage ratio (Debt ratio)
Leverage ratio (debt ratio, debt-to-equity ratio)- indicator financial position enterprise, characterizing the ratio of borrowed capital and all assets of the organization.
The term "financial leverage" is also used to characterize a principled approach to business financing, when, with the help of borrowed funds, an enterprise forms financial leverage to increase the return on own funds invested in the business.
Leverage(Leverage - “lever” or “lever action”) is a long-term factor, the change of which can lead to a significant change in a number of performance indicators. This term is used in financial management to characterize a relationship showing how an increase or decrease in the share of any group of semi-fixed costs affects the dynamics of the income of the company's owners.
The following term names are also used: autonomy coefficient, financial dependence coefficient, financial leverage coefficient, debt burden.
The essence of the debt burden is as follows. Using borrowed funds, the company increases or decreases the return on equity. In turn, the decrease or increase in ROE depends on the average cost of borrowed capital (average interest rate) and makes it possible to judge the effectiveness of the company in choosing sources of financing.
Method for calculating the coefficient of financial dependence
This indicator describes the company's capital structure and characterizes its dependence on . It is assumed that the amount of all debts should not exceed the amount of equity capital.
The calculation formula for the financial dependency ratio is as follows:
Liabilities / Assets
Liabilities are considered both long-term and short-term (whatever is left after subtracting from the equity balance). Both components of the formula are taken from balance sheet organizations. However, it is recommended to make calculations based on the market valuation of assets, and not data. financial statements. Since a successfully operating enterprise, the market value of equity capital may exceed the book value, which means a lower value of the indicator and more low level financial risk.
As a result normal value coefficient should be equal to 0.5-0.7.
- Coefficient 0.5 is optimal (equal ratio of own and borrowed capital).
- 0.6-0.7 - is considered a normal coefficient of financial dependence.
- A coefficient below 0.5 indicates an organization's too cautious approach to raising debt capital and missed opportunities to increase the return on equity through the use of the effect of financial leverage.
- If the level of this indicator exceeds the recommended number, then the company has a high dependence on creditors, which indicates a deterioration in financial stability. The higher the ratio, the greater the company's risks regarding the potential for bankruptcy or a shortage of cash.
Conclusions from the value of the Debt ratio
The financial leverage ratio is used to:
1) Comparisons with the average level in the industry, as well as with indicators from other firms. The value of the financial leverage ratio is influenced by the industry, the scale of the enterprise, as well as the method of organizing production (capital-intensive or labor-intensive production). Therefore, the final results should be evaluated in dynamics and compared with the indicator of similar enterprises.
2) Analysis of the possibility of using additional borrowed sources of financing, the efficiency of production and marketing activities, the optimal decisions of financial managers in matters of choosing objects and sources of investment.
3) Analysis of the debt structure, namely: the share of short-term debts in it, as well as tax debts, wages, various deductions.
4) Determination by creditors of financial independence, stability of the financial position of an organization that plans to attract additional loans.
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Financial lever characterizes the ratio of all assets to equity, and the effect of financial leverage is calculated by multiplying it by the economic profitability indicator, that is, it characterizes the return on equity (the ratio of profit to equity).
The effect of financial leverage is an increment to the return on equity obtained through the use of a loan, despite the payment of the latter.
An enterprise using only its own funds limits their profitability to about two-thirds of economic profitability.
РСС - net profitability of own funds;
ER - economic profitability.
An enterprise using a loan increases or decreases the return on equity, depending on the ratio of own and borrowed funds in liabilities and on the interest rate. Then there is the effect of financial leverage (EFF):
(3)
Consider the mechanism of financial leverage. In the mechanism, a differential and a shoulder of financial leverage are distinguished.
Differential - the difference between the economic return on assets and the average calculated interest rate (AMIR) on borrowed funds.
Due to taxation, unfortunately, only two-thirds of the differential remain (1/3 is the profit tax rate).
Shoulder of financial leverage - characterizes the strength of the impact of financial leverage.
(4)
Let's combine both components of the effect of financial leverage and get:
(5)
(6)
Thus, the first way to calculate the level of financial leverage effect is:
(7)
The loan should lead to an increase in financial leverage. In the absence of such an increase, it is better not to take a loan at all, or at least calculate the maximum maximum amount of credit that leads to growth.
If the loan rate is higher than the level of economic profitability of the tourist enterprise, then increasing the volume of production due to this loan will not lead to the return of the loan, but to the transformation of the enterprise from profitable to unprofitable.
Here we should highlight two important rules:
1. If a new borrowing brings the company an increase in the level of financial leverage, then such borrowing is profitable. But at the same time, it is necessary to monitor the state of the differential: when increasing the leverage of financial leverage, a banker is inclined to compensate for the increase in his risk by increasing the price of his “commodity” - a loan.
2. The creditor's risk is expressed by the value of the differential: the larger the differential, the lower the risk; the smaller the differential, the greater the risk.
You should not increase the financial leverage at any cost, you need to adjust it depending on the differential. The differential must not be negative. And the effect of financial leverage in world practice should be equal to 0.3 - 0.5 of the level of economic return on assets.
Financial leverage allows you to assess the impact of the capital structure of the enterprise on profit. The calculation of this indicator is expedient from the point of view of assessing the effectiveness of the past and planning the future financial activities of the enterprise.
Advantage rational use financial leverage is the ability to generate income from the use of capital borrowed at a fixed interest in investment activities that bring a higher interest than paid. In practice, the value of financial leverage is affected by the scope of the enterprise, legal and credit restrictions, and so on. Too high financial leverage is dangerous for shareholders, as it involves a significant amount of risk.
Commercial risk means uncertainty about possible outcome, the uncertainty of this result of activity. Recall that risks are divided into two types: pure and speculative.
Financial risks are speculative risks. An investor, making a venture capital investment, knows in advance that only two types of results are possible for him: income or loss. A feature of financial risk is the likelihood of damage as a result of any operations in the financial, credit and exchange areas, transactions with stock securities, that is, the risk that arises from the nature of these operations. Financial risks include credit risk, interest rate risk, currency risk, risk of lost financial profit.
The concept of financial risk is closely related to the category of financial leverage. Financial risk is the risk associated with a possible lack of funds to pay interest on long-term loans and borrowings. The increase in financial leverage is accompanied by an increase in the degree of riskiness of this enterprise. This is manifested in the fact that for two tourist enterprises with the same volume of production, but different level financial leverage, the variation in net profit due to changes in the volume of production will not be the same - it will be greater for an enterprise with a higher level of financial leverage.
The effect of financial leverage can also be interpreted as the change in net income per ordinary share (as a percentage) generated by a given change in the net result of the operation of investments (also as a percentage). This perception of the effect of financial leverage is typical mainly for American school financial management.
Using this formula, they answer the question of how many percent the net profit per ordinary share will change if the net result of the operation of investments (profitability) changes by one percent.
After a series of transformations, you can go to the formula the following kind:
Hence the conclusion: the higher the interest and the lower the profit, the greater the strength of the financial leverage and the higher the financial risk.
When forming a rational structure of sources of funds, one must proceed from the following fact: to find such a ratio between borrowed and own funds, in which the value of the enterprise's share will be the highest. This, in turn, becomes possible with a sufficiently high, but not excessive effect of financial leverage. The level of debt is for the investor a market indicator of the well-being of the enterprise. An extremely high proportion of borrowed funds in liabilities indicates an increased risk of bankruptcy. If the tourist enterprise prefers to manage with its own funds, then the risk of bankruptcy is limited, but investors, receiving relatively modest dividends, believe that the enterprise does not pursue the goal of maximizing profits, and begin to dump shares, reducing the market value of the enterprise.
There are two important rules:
1. If the net result of the operation of investments per share is small (and at the same time the financial leverage differential is usually negative, the net return on equity and the dividend level are lower), then it is more profitable to increase equity through the issuance of shares than to take out a loan: attracting borrowed funds costs the company more than raising its own funds. However, there may be difficulties in the process of initial public offering.
2. If the net result of the operation of investments per share is large (and at the same time the financial leverage differential is most often positive, the net return on equity and the dividend level are increased), then it is more profitable to take a loan than to increase own funds: raising borrowed funds costs the enterprise cheaper than raising own funds. Very important: it is necessary to control the strength of the impact of financial and operational leverage in the event of their possible simultaneous increase.
Therefore, you should start by calculating the net return on equity and net earnings per share.
(10)
1. The pace of increasing the turnover of the enterprise. Increased turnover growth rates also require increased funding. This is due to the increase in variable, and often fixed costs, the almost inevitable swelling of receivables, as well as many other most different reasons including cost-push inflation. Therefore, on a steep rise in turnover, firms tend to rely not on internal, but on external funding with an emphasis on increasing the share of borrowed funds in it, since issuance costs, the costs of initial public offering and subsequent dividend payments most often exceed the value of debt instruments;
2. Stability of turnover dynamics. An enterprise with a stable turnover can afford a relatively larger share of borrowed funds in liabilities and higher fixed costs;
3. Level and dynamics of profitability. It is noted that the most profitable enterprises have a relatively low share of debt financing on average over a long period. The enterprise generates sufficient profits to finance development and pay dividends, and costs more and more more own funds;
4. Structure of assets. If the company has significant assets general purpose, which by their very nature are capable of serving as collateral for loans, then an increase in the share of borrowed funds in the liability structure is quite logical;
5. The severity of taxation. The higher the income tax, the lower tax breaks and opportunities to use accelerated depreciation, the more attractive for the enterprise is debt financing due to the attribution of at least part of the interest on the loan to the cost;
6. Attitude of creditors to the enterprise. The play of supply and demand in the money and financial markets determines the average terms of credit financing. But the specific conditions this loan may deviate from the average depending on the financial and economic situation of the enterprise. Whether bankers compete for the right to provide a loan to an enterprise, or money has to be begged from creditors - that is the question. Much depends on the answer real opportunities enterprises for the formation of the desired structure of funds;
8. Acceptable degree of risk for the leaders of the enterprise. The people at the helm may be more or less conservative in terms of risk tolerance when making financial decisions;
9. Strategic target financial settings of the enterprise in the context of its actually achieved financial and economic position;
10. The state of the market for short- and long-term capital. With an unfavorable situation in the money and capital market, it is often necessary to simply obey the circumstances, postponing until better times the formation of a rational structure of sources of funds;
11. Financial flexibility of the enterprise.
Example.
Determination of the value of the financial leverage of the economic activity of the enterprise on the example of the hotel "Rus". Let us determine the expediency of the size of the attracted credit. The structure of enterprise funds is presented in Table 1.
Table 1
The structure of the financial resources of the enterprise hotel "Rus"
| Indicator | Value |
| Initial values | |
| Hotel asset minus credit debt, mln. rub. | 100,00 |
| Borrowed funds, million rubles | 40,00 |
| Own funds, million rubles | 60,00 |
| Net result of investment exploitation, mln. rub. | 9,80 |
| Debt servicing costs, million rubles | 3,50 |
| Estimated values | |
| Economic profitability of own funds, % | 9,80 |
| Average calculated interest rate, % | 8,75 |
| Financial leverage differential excluding income tax, % | 1,05 |
| Financial leverage differential including income tax, % | 0,7 |
| Financial Leverage | 0,67 |
| Effect of financial leverage, % | 0,47 |
Based on these data, the following conclusion can be drawn: the Rus Hotel can take out loans, but the differential is close to zero. Minor changes in manufacturing process or higher interest rates can "reverse" the effect of leverage. There may come a time when the differential becomes less than zero. Then the effect of financial leverage will act to the detriment of the hotel.
To calculate the effect of financial leverage (EFF), it is necessary to calculate the economic profitability (ER) and the average calculated interest rate (AMIR).
EGF \u003d 2/3 (ER - SRSP) * ZS / SS
Where ER = Net operating result of the investment / (Own funds + Borrowed funds),
IFCI = Finance Cost of Interest / Borrowings * 100%
This formula can be presented in a more extended version.
Service assignment. With the help of an online calculator, a step-by-step analysis of the enterprise's activities is carried out:
- Calculation of the effect of financial leverage.
- Profit sensitivity analysis to changes in the analyzed factor.
- Determination of a compensating change in the volume of sales when the analyzed factor changes.
Instruction. Complete the table, click Next. The decision report will be saved in MS Word format.
Indicators such as Own funds (SS), Borrowed funds (SL), Undestributed profits previous years, Authorized capital, Current Assets, Current Liabilities and Profitability of sales can be determined from the balance sheet data (found through the calculator).
Classification of the effect of financial leverage
Example. Table 1 - Initial data
| Indicators | Meaning |
| 1. Sales proceeds thousand rubles. | 12231.8 |
| 2. Variable costs thousand rubles. | 10970.5 |
| 3. Fixed costs thousand rubles. | 687.6 |
| 4. Own funds (SS) thousand rubles. | 1130.4 |
| 5. Borrowed funds (LL) thousand rubles. | 180 |
| 6. Financial costs for borrowed funds (FI) thousand rubles. | 32.4 |
Let's define financial indicators enterprise activities
Table 1 - Performance indicators of the enterprise
1. Calculation of the effect of financial leverage
To calculate the effect of financial leverage (EFF), it is necessary to calculate the economic profitability (ER) and the average calculated interest rate (AMIR).
ER = NREI / Assets * 100 = 606.1 / (1130.4 + 180) * 100 = 46.25%
SRSP \u003d FI / GC * 100 \u003d 32.4 / 180 * 100 \u003d 18%
EGF \u003d 2 / 3 (ER - SRSP) * GL / SS \u003d 2 / 3 (46.25% - 18%) * 180 / 1130.4 \u003d 3.0%
PCC = 2/3 * ER + EGF = 2/3 * 46.25 + 3.0 = 33.84%
The essence of the effect of financial leverage: the effect of financial leverage shows the increment to the return on equity obtained as a result of the use of borrowed capital. In our case, it was 3.0%.
The effect of financial leverage can also be used to assess the creditworthiness of an enterprise.
Since the financial leverage is less than 1 (0.159), this enterprise can be regarded as solvent. The meaning of the effect of financial leverage: the company can apply for additional credit.
Using the graphical method, we determine the safe amount of borrowed funds. Typical differential curves are shown in Figure 1.
Rice. 1. Differential curves
Determine the position of our enterprise on the graph.
ER / SRSP = 46.25 / 18 = 2.57
Where ER \u003d 2.57 SRSP
With additional borrowing, it is necessary that the enterprise does not fall below the main curve (the enterprise is between ER \u003d 3 SRSP and ER \u003d 2 SRSP). Therefore, at the level of tax neutralization at the EGF/RCC point = 1/3, the allowable leverage of the CA/CC financial leverage is 1.0.
Thus, the loan can be increased by 950.4 thousand rubles. and reach 1130.4 thousand rubles.
Let us determine the upper limit of the price of borrowed capital.
ER = 2SRSP
Where SRSP = 46.25% / 2 = 23.13%
CPCP = FI / AP
Where FI \u003d SRSP * GS \u003d 23.13% * 1130.4 \u003d 261.422 thousand rubles.
Thus, this enterprise, without losing financial stability you can take an additional amount of borrowed funds for 950.4 thousand rubles. Additional borrowing will cost the company 219.795 thousand rubles, if the average interest rate on the loan does not exceed 23.13%.
Let us calculate the critical value of the net result of the operation of investments, i.e. such a value at which the effect of financial leverage is equal to zero, and therefore, the return on equity is the same for options, both with the involvement of borrowed funds, and with the use of only own funds.
NREI critical = 1310.4 * 18 = 235.872 thousand rubles.
In our case, the threshold value has been passed, and this indicates that it is profitable for the enterprise to attract borrowed funds.