The financial analysis. Break-even point of housekeeping Payback period of own capital normative value
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2. Profit before tax - takes into account expenses (commercial, administrative and others) that are not included in gross profit (line 140 of form No. 2).
Profit before tax - the basis for the calculation of income tax (20% of profit before tax)
3. Net profit - (line 190 form No. 2) the result of economic activity and the balance of additional funds of the enterprise after deductions to the budget net profit– the basis for the formation of enterprise funds and on joint stock companies- accrual of dividend payments
4. Retained earnings - (line 470 form No. 1) the value increases the value of the company's own capital for the current year. It is defined as profit after settlements with shareholders and the accrual of the material incentive fund, as well as loan payments, the due date of payment, which was in the corresponding period
Profitability is a relative indicator that characterizes the ratio of profit and costs necessary to obtain it. Profitability characterizes the relative value of the efficiency of the enterprise. Profitability is estimated by the following ratios:
1. How much net profit falls on each ruble of sold products
2. General profitability - characterizes the ratio of gross profit to sales proceeds. It shows the result production activities received in each ruble of revenue
3. Return on equity
4. Economic profitability - characterizes the assessment of the production result, in relation to each ruble invested in the assets of the enterprise.
Characterizes the efficiency of the use of all assets of the enterprise in the process of production activities
5. Profitability - characterizing the efficiency of use common funds enterprises (line 190)
6. Profitability of the main activity - shows the ratio of gross profit to the amount of production costs incurred
7. Return on operating capital - characterizes the efficiency of capital
8. Stability factor economic growth- shows the pace at which equity is increasing through financing economic activity
Payback period of equity
Shows the number of years during which investments of equity capital in a particular enterprise pay off
Estimates the payback period according to the state of the enterprise's economic activity for the current period.
Analysis of the efficiency of the enterprise according to the models of the DuPont company
The model proposed by DuPont is comprehensive assessment activities of the enterprise in the possibility of carrying out factor analysis, i.e. determination of the influence of each considered factor on the final result, the result is the indicator of the return on equity factor.
Financial risk - the possibility of losses (revenue, equity, profit) in the face of economic uncertainty
Risk groups:
1. Dependent on the activities of the enterprise
2. Independent of the activities of the enterprise (market / systematic risks)
Types of risks:
1. Specific risks
a. Downside risk financial stability caused by an imperfect capital structure, i.e. excessive leverage with a high financial leverage ratio
b. The risk of insolvency is associated with the inability to pay contractual obligations within a certain period and the reason for it is the low liquidity of the company's assets (i.e. there are no funds on the current account)
c. Investment risk expresses the possibility of losses in the investment process.
2. Components of IR:
3. - the risk of real investment
4. - risk of financial investment or portfolio risk
5. - the risk of innovative investment is associated with the implementation of projects for the introduction of innovations
6. Risk associated with investing in venture capital.
7. All of them are associated with a possible loss of capital of the enterprise and are included in the group of the most dangerous
a. Deposit risk reflects the possibility of non-repayment of deposits or non-redemption of certificates of deposit
b. Credit risk. Banking risk in the conditions commercial enterprise appears as:
8. - risk of non-payment for delivered products
9. - risk of non-return of advance payments in case of non-delivery of goods
2. Risks independent of the activity of the enterprise
a. Inflationary risks, which are characterized by the possibility of depreciation of the real value of capital in the form of monetary assets, as well as the expected income and profit of the enterprise
a. interest rate risk. It consists in an unforeseen change in the interest rate in the financial market, both deposit and credit. The reason for this risk is the changing market conditions financial market under influence state regulation. From July 1, 2009 Central banks cannot independently change the state loan rate without the consent of the borrower.
Refinancing rate - the rate at which a financial bank finances commercial markets
b. The currency risk is associated with holding foreign economic activity and has 2 aspects:
The risk of choosing the type of currency
Currency fluctuation risk
These risks accompany financial losses during an export-import operation.
With a depreciation of the exchange rate, the exporters bear the losses, with an increase, the losses are borne by the importers.
c. Tax risk has a negative impact on results financial activities and has the following aspects:
Risk of introducing new types of payments
The risk of limiting the rates of existing payments
Risk of cancellation of tax benefits
The risk of changing the conditions and time of payment of tax payments
d. Other types of risks
Risk of untimely settlement and cash operations
Theft risk
Issuance risk is associated with the fact that the sale of shares on open market produced at less than the planned share price
Financial risk management policy
The PFMI represents the general part of the strategy concluded in the organization to identify and prevent the consequences of risks.
Analysis financial condition enterprise is one of the stages of assessment, it serves as the basis for understanding the true state of the enterprise and the degree of financial risks.
under financial condition refers to the ability of an enterprise to finance its activities. It is characterized by the availability of financial resources necessary for the normal functioning of the enterprise, the expediency of their placement and efficiency of use, financial relationships with other legal and individuals, solvency and financial stability.
The results of financial analysis directly affect the choice of valuation methods, forecasting the income and expenses of the enterprise, determining the discount rate used in the discounted cash flow method, and the value of the multiplier used in the comparative approach.
An analysis of the financial condition of an enterprise includes an analysis of balance sheets and reports on the financial results of the enterprise being evaluated for past periods in order to identify trends in its activities and determine the main financial indicators.
Analysis of the financial condition of the enterprise involves the following steps:
- Analysis of property status
- Analysis of financial results
- Analysis of the financial condition
1. Analysis of property status
In the course of the functioning of the enterprise, the value of assets, their structure undergo constant changes. The most general idea of the qualitative changes that have taken place in the structure of funds and their sources, as well as the dynamics of these changes, can be obtained using vertical and horizontal analysis of reporting.
Vertical Analysis shows the structure of the company's funds and their sources. Vertical analysis allows you to move on to relative estimates and conduct economic comparisons of the economic performance of enterprises that differ in the amount of resources used, smooth out the impact of inflationary processes that distort the absolute indicators of financial statements.
Horizontal Analysis reporting consists in building one or more analytical tables in which absolute indicators are supplemented by relative growth (decrease) rates. The degree of aggregation of indicators is determined by the analyst. As a rule, basic growth rates are taken for a number of years (contiguous periods), which makes it possible to analyze not only the change individual indicators, but also to predict their values.
horizontal and vertical analyzes complement each other. Therefore, in practice, it is not uncommon to build analytical tables that characterize both the structure of financial statements and the dynamics of its individual indicators. Both of these types of analysis are especially valuable in inter-farm comparisons, as they allow you to compare the statements of enterprises that differ in type of activity and production volumes.
VERTICAL AND HORIZONTAL BALANCE ANALYSIS
| Indicators |
For the beginning of the year | At the end of the year | Changes (+, -) |
||||
| thousand roubles. |
in % of the total | thousand roubles. |
in % of the total | thousand roubles. |
in specific gravity | in % to value |
|
| ASSETS | |||||||
| 1. Fixed assets | |||||||
| 2. Other non-current assets | |||||||
| 3. Stocks and costs | |||||||
| 4. Accounts receivable | |||||||
| 5. Cash and other assets | |||||||
| Balance | |||||||
| LIABILITY | |||||||
| 6. Capital and reserves | |||||||
| 7. Long-term loans and borrowings | |||||||
| 8. Short-term loans and borrowings | |||||||
| 9. Accounts payable | |||||||
| Balance | |||||||
2. Analysis of financial results
Profitability indicators are relative characteristics of the financial results and performance of the enterprise. They measure the profitability of an enterprise from various positions and are grouped according to the interests of the participants in the economic process, market volume. Profitability indicators are important characteristics of the factor environment for the formation of profits and income of enterprises.
The effectiveness and economic feasibility of the operation of an enterprise are measured by absolute and relative indicators: profit, gross income, profitability, etc. Using the data of the income statement (Form No. 2) and the consolidated balance sheet, we will calculate the main indicators of profitability.
| Indicators |
Brief definition | Formula (No. of lines of the balance sheet) |
| Profitability of sales | shows how much profit falls on the unit of sales. |
page 050/page 010 (F2) |
| Profitability of core business | shows how much profit from the sale falls on 1 rub. costs. |
p. 050/(p. 020+p. 030+p. 040) (F2) |
| Return on total capital | shows the efficiency of capital use. The dynamics of return on equity has an impact on the dynamics of share prices. |
(p. 140-p. 150) (F.2)/(p. 300-p. 252-p. 244) |
|
Return on equity | (p. 140-p. 150) (F.2)/(p. 490-p. 252-p. 244) |
|
|
Payback period of equity | shows the number of years during which investments in this organization will fully pay off. |
(p. 490-p. 252-p. 244)/(p. 140-p. 150) (F.2) |
|
ROS rate of return |
sales revenue is the ratio of net income to gross sales |
p. 140 (F2) / p. 010 (F2) |
| Return on assets ROA | net income / total assets | line 140(Form 2)/ (average value of assets (line 300n+ line 300k)/ 2) |
| Return on equity ROE | net income / equity. | p.140 (F2) / cf. led. own funds - (sum of balance lines 490 at the beginning and at the end of the period): 2 |
The given indicators do not have standard values, depend on many factors and vary significantly for enterprises of various profiles, size, structure of assets and sources of funds, therefore it is advisable to analyze trends in their change over time.
3. Analysis of the financial condition
3.1. Assessment of the dynamics and structure of balance sheet items
The financial condition of the enterprise is characterized by the placement and use of funds and sources of their formation.
For a general assessment of the dynamics of the financial condition, the balance sheet items should be grouped into separate specific groups on the basis of liquidity and maturity of obligations (aggregate balance sheet). On the basis of the aggregated balance sheet, an analysis of the structure of the enterprise's property is carried out. Directly from the analytical balance sheet, you can get a number of the most important characteristics of the financial condition of the enterprise, which are presented in the table below.
| Characteristics of financial condition | Share in the balance at xxx, in % | Changes in absolute values, in thousand rubles | Changes in relative values, in % |
|
The total value of the property of the organization (line 300-line 252-line 244) | |||
| Cost of immobilized (non-current) funds (assets (line 190) | |||
| Cost of mobile (working) assets (p. 290) | |||
| Cost of material working capital(p. 210) | |||
| The value of the organization's own funds (p. 490) | |||
| Amount of borrowed funds (line 590 + line 690) | |||
| Current own working capital (line 490 - line 252 - line 244+ line 590 - line 190 - line 230) | |||
| Value accounts receivable(p. 230 + p. 240) | |||
| The amount of accounts payable (line 620) | |||
| Working capital (p. 290 - p. 690) |
Dynamic analysis of these indicators allows you to set their absolute increments and growth rates, which is important for characterizing the financial condition of the enterprise.
3.2. Analysis of liquidity and solvency of the balance sheet
The financial position of the enterprise can be assessed from the point of view of the short and long term. In the first case, the evaluation criteria financial position- liquidity and solvency of the enterprise, i.е. the ability to timely and in full make settlements on short-term obligations.
The task of analyzing the liquidity of the balance sheet arises in connection with the need to assess the creditworthiness of the organization, i.e. its ability to timely and fully pay all its obligations.
Balance sheet liquidity is defined as the extent to which an organization's liabilities are covered by its assets, the maturity of which is equal to the maturity of the liabilities. Liquidity of the balance sheet should be distinguished from the liquidity of assets, which is defined as the temporary value necessary to convert them into cash. The less time it takes to this species assets turned into money, the higher their liquidity.
Solvency means that the company has Money and their equivalents sufficient to settle accounts payable requiring immediate repayment. Thus, the main signs of solvency are: a) the presence of sufficient funds in the current account; b) the absence of overdue accounts payable.
Obviously, liquidity and solvency are not identical to each other. Thus, liquidity ratios may characterize the financial position as satisfactory, however, in essence, this assessment may be erroneous if a significant proportion of current assets falls on illiquid assets and overdue receivables.
Depending on the degree of liquidity, i.e. the rate of conversion into cash, the Company's assets can be divided into the following groups:
A 1. The most liquid assets - these include all items of the company's cash and short-term financial investments. This group is calculated as follows:
A 1 \u003d page 250 + page 260
A 2. Marketable assets are accounts receivable, payments on which are expected within 12 months after the reporting date:
A 2 = p. 240
A 3. Slowly realizable assets - items in section II of the balance sheet asset, including inventories, value added tax, receivables (payments for which are expected more than 12 months after the reporting date) and other current assets:
A 3 = page 210 + page 220 + page 230 + page 270
A 4. Difficult-to-sell assets - items of section I of the asset balance - non-current assets:
A 4 = p. 190
Liabilities of the balance are grouped according to the degree of urgency of their payment.
P 1. The most urgent liabilities - these include accounts payable:
P 1 = p. 620
P 2. Short-term liabilities are short-term borrowed funds, and other short-term liabilities:
P 2 \u003d p. 610 + p. 660
P 3. Long-term liabilities are balance sheet items related to sections V and VI, i.e. long-term loans and borrowings, as well as debt to participants for the payment of income, deferred income and reserves for future expenses:
P 3 \u003d p. 590+ p. 630 + p. 640 +p. 650
P 4. Permanent liabilities or stable ones are articles IV of the balance sheet section “Capital and reserves”. If the organization has losses, then they are deducted:
P 4 = p. 490
To determine the liquidity of the balance sheet, one should compare the results of the above groups for assets and liabilities.
The balance is considered absolutely liquid if the following ratios take place:
A 1 > P 1; A 2 > P 2; A 3 > P 3; A 4 < P 4
If the first three inequalities are satisfied in this system, then this entails the fulfillment of the fourth inequality, so it is important to compare the results of the first three groups by asset and liability.
In the case when one or more inequalities of the system have the opposite sign from that fixed in the optimal variant, the liquidity of the balance to a greater or lesser extent differs from the absolute one. At the same time, the lack of funds in one group of assets is compensated by their surplus in another group in value, but in a real situation, less liquid assets cannot replace more liquid ones.
Further comparison of liquid funds and liabilities allows us to calculate the following indicators:
Current liquidity of TL, which indicates the solvency (+) or insolvency (-) of the organization for the nearest time period to the moment in question:
TL \u003d (A 1 + A 2) - (P 1 + P 2)
Prospective liquidity of PL is a forecast of solvency based on a comparison of future receipts and payments:
PL \u003d A 3 - P 3
The analysis of financial statements and liquidity of the balance sheet carried out according to the above scheme is approximate. More detailed is the analysis financial indicators and coefficients given in the table below:
| Indicators |
Brief definition | Calculation formula |
Standard |
| General liquidity ratio | For a comprehensive assessment of the liquidity of the balance sheet as a whole, the general liquidity indicator should be used. Via this indicator assessment of changes in the financial situation in the organization in terms of liquidity. This indicator is also used when choosing the most reliable partner from a variety of potential partners based on reporting. | L1=(A1+0.5A2+0.3A3)/(P1+0.5P2+0.3P3) | L1 > 1 |
| Absolute liquidity ratio | It is the most stringent criterion for the liquidity of an enterprise: it shows what part of short-term debt obligations can be repaid immediately, if necessary, at the expense of cash. In domestic practice, the actual average values of this coefficient, as a rule, do not reach the standard value. | L2=p. 260/p. 690 | L2 > 0,2-0,5 |
| Quick liquidity ratio | The indicator is similar to the current liquidity ratio; however, it is calculated on a narrower range of current assets. This ratio shows the predicted payment capabilities of the organization, subject to timely settlements with debtors. Analyzing the dynamics of this coefficient, it is necessary to pay attention to the factors that caused its change. So, if the growth of the quick liquidity ratio was mainly due to the growth of unjustified receivables, then this cannot characterize the activity of the enterprise on the positive side. |
L3=(page 290-page 252-page 244-page 210-page 220-page 230)/page 690 |
L3 > 1 |
| Current liquidity ratio | Gives a general assessment of the liquidity of assets, showing how many rubles of current assets account for one ruble of current liabilities. The logic of calculating this indicator is that the company repays short-term liabilities mainly at the expense of current assets; therefore, if current assets exceed current liabilities, the enterprise can be considered as successfully functioning (at least in theory). The value of the indicator can vary by industry and type of activity, and its reasonable growth in dynamics is usually regarded as a favorable trend. | L4=(p. 290-p. 252-p. 244-p. 230)/p. 690 | L4 > 2 |
| Equity ratio | It characterizes the presence of own working capital of the enterprise, necessary for its financial stability. The second of the normative coefficients, the value of which is less than 0.1, gives grounds for recognizing the balance sheet structure of the enterprise as unsatisfactory, and the enterprise as insolvent. | L5=(p.490-p.252-p.244+p.590-p.190-p.230)/(p.290-p.252-p.244-p.230) |
L5 > 0,1 |
| Solvency recovery ratio | It is calculated for a period of 6 months, if at least one of the two coefficients considered above (security of own funds and current liquidity) is less than the standard value. It should be noted that the solvency recovery ratio, which takes a value greater than 1, indicates a real opportunity for the enterprise to restore its solvency. If the coefficient takes a value less than 1, then this indicates that the enterprise has no real opportunity to restore solvency in the near future. |
L6=(L4 final lane+6/t(L4 final lane-L4 beginning lane)/2 |
L6 > 1 |
| The coefficient of maneuverability of own working capital |
It characterizes that part of own working capital, which is in the form of cash, i.e. funds with absolute liquidity. For a normally functioning enterprise, this indicator usually varies from zero to one. Ceteris paribus, the growth of the indicator in dynamics is considered as a positive trend. An acceptable indicative value of the indicator is set by the enterprise independently and depends, for example, on how high the daily need of the enterprise for free cash resources is. | L7=p. 260/(p. 290-p. 252-p. 244-p. 230-p. 690) |
L7 0 to 1 |
| Share of working capital in assets | Characterizes the share of own working capital in total value economic funds. |
L8=(p.290-p.252-p.244-p.230)/(p.300-p.252-p.244) |
L8 > 0,5 |
| Reserve coverage ratio | It is calculated by correlating the value of sources of coverage of reserves and the amount of reserves. If the value of this indicator is less than one, then the current financial condition of the enterprise is considered as unstable. | L9=(p. 490-p. 252-p. 244+p. 590-p. 190-p. 230+p. 610+p. 621+p. 622+p. 627)/(p. 210+p. .220) | L9 > 1 |
3.3. Analysis of financial stability and capital structure
An assessment of the financial condition of an enterprise will be incomplete without an analysis of financial stability. Analyzing solvency, compare the state of liabilities with the state of assets. The task of financial stability analysis is to assess the size and structure of assets and liabilities. Indicators that characterize the independence of each element of the assets and property in general, make it possible to measure whether the analyzed organization is financially stable enough.
Under the financial stability of an economic entity, one should understand the security of its reserves and costs with the sources of their formation. A detailed analysis of the financial condition of the organization can be carried out using absolute and relative indicators.
The simplest and approximate way to assess financial stability is to comply with the ratio:
Production stocks (line 210+line 220)< Текущие оборотные средства (стр. 490 - стр. 252 -стр. 244+ стр. 590-стр. 190 -стр. 230)
This ratio shows that all stocks are fully covered by own working capital, i.e. the company is not dependent on external creditors. But such a situation cannot be considered normal, since it means that the administration either does not know how, or does not want, or does not have the opportunity to use external sources to carry out the main activity. Therefore, the ratio is more fair:
Production stocks (line 210+line 220)< Текущие оборотные средства (стр. 490 - стр. 252 -стр. 244+ стр. 590-стр. 190 -стр. 230)+Краткосрочные заемные средства (стр. 610)+Расчеты с кредиторами по товарным операциям (стр. 621+стр. 622+стр. 627)
This is the simplest and most approximate way to assess financial stability.
However, in addition to absolute indicators, financial stability is also characterized by relative coefficients, which are accepted in world and domestic accounting and analytical practice.
| Indicators |
Brief definition | Formula (No. of lines of the balance sheet) |
Standard |
| Capitalization ratio | Gives the most general assessment of the financial stability of the enterprise and indicates how much borrowed funds the organization has attracted for 1 rub. own funds invested in assets. The growth of the indicator in dynamics indicates an increase in the dependence of the enterprise on external investors and creditors, i.e. about some decrease in financial stability, and vice versa. | (p. 590+p. 690)/(p. 490-p. 252-p. 244) | U1<1,5 |
| Financial Independence Ratio | or concentration of equity capital. It characterizes the share of the owners of the enterprise in total amount funds advanced for its activities. The higher the value of this ratio, the more financially stable, stable and independent of external loans the enterprise. An addition to this indicator is the concentration ratio of attracted (borrowed) capital - their sum is equal to 1 (or 100%). |
(p. 490 - p. 252-p. 244)/(p. 300 - p. 252-p. 244) |
U2 > 0,4-0,6 |
| Debt capital concentration ratio | shows the share of borrowed capital in the total amount of sources of capital formation and reflects the trend of the enterprise's dependence on borrowed sources of capital formation. . | (p. 590+p. 690)/(p. 300-p. 252-p. 244) | U3? 0 |
| Equity maneuverability ratio | what part of equity is in a mobile form, allowing relatively free to maneuver capital. | (p. 290-p. 252-p. 244-p. 230-p. 690)/(p. 490-p. 252-p. 244) |
U4~0.5 |
| Financial stability ratio | shows the security of current assets with long-term sources of formation. |
(p. 490-p. 252-p. 244+p. 590)/(p. 300-p. 252-p. 244) |
U5 > 1,0 |
A generalizing indicator of financial independence is the surplus or shortage of sources of funds for the formation of reserves and costs, which is determined as the difference in the value of sources of funds and the value of reserves and costs:
The total amount of stocks and costs is equal to the sum of lines 210 and 220 of the asset balance:
33 = page 210 + page 220
To characterize the sources of formation of reserves and costs, several indicators are used that reflect different kinds sources.
1. Availability of general own working capital (SOS):
SOS = p. 490 - p. 190
2. Availability of own and long-term borrowed sources of formation of reserves and costs or total functioning capital (CF):
KF = p. 490 + p. 590 - p. 190
3. The total value of the main sources of formation of reserves and costs:
VI \u003d p. 490 + p. 590 + p. 610 - p. 190
Three indicators of the availability of sources of formation of reserves and costs correspond to three indicators of the availability of reserves and costs with sources of formation.
| Indicators |
Type of financial situation | |||||
|
Absolute independence | Normal independence | Unstable state | Crisis state | |||
| Surplus (+) or shortage (-) of own working capital (Fs) |
Fs >0 |
Fs<0 |
Fs<0 |
Fs<0 | ||
| Surplus (+) or shortage (-) of own and long-term borrowed sources of reserves and costs (FT) | ft >0 | ft >0 | ft<0 | ft<0 | ||
|
Surplus (+) or shortage (-) of the total value of the main sources for the formation of reserves and costs (Pho) | Fo >0 | Fo >0 | Fo >0 | Fo<0 | ||
It is possible to distinguish 4 types of financial situations:
1. Absolute financial independence. This type of situation is extremely rare and represents an extreme type of financial stability.
2. Normal independence of the financial condition, which guarantees solvency.
3. Unstable financial condition, associated with a violation of solvency, but which still retains the possibility of restoring balance by replenishing sources of own funds, by reducing receivables, accelerating inventory turnover.
4. Crisis financial condition in which the company is completely dependent on borrowed sources of financing. Equity capital, long-term and short-term loans and borrowings are not enough to finance working capital, that is, replenishment of stocks comes at the expense of funds generated as a result of slowing down the repayment of accounts payable.
To be continued …
Profitability of production
Profitability of financial investments
Return on assets of the enterprise
Profitability of production assets
Return on current assets
Overall profitability
This indicator is the most common in determining the profitability of an enterprise and is calculated as the ratio of profit before tax to the proceeds from the sale of goods, works and services produced by the enterprise.
The indicator indicates what part of the proceeds from sales is profit before tax, is analyzed in dynamics and compared with the industry average values of this indicator.
R total \u003d P day / In real,
whereP day -profit before tax;
In real-revenues from sales.
It is defined as the ratio of net profit (profit after tax) to the company's current assets. This indicator reflects the ability of the enterprise to ensure a sufficient amount of profit in relation to the working capital used by the company. The higher the value of this ratio, the more efficiently working capital is used.
R both \u003d PE / OA,
wherestate of emergency – net profit;
OA - average annual value of current assets.
It is defined as the ratio of balance sheet profit to the average value of the sum of the cost of fixed production assets, intangible assets and working capital as part of inventory items.
The level of profitability of production assets is the higher, the higher the profitability of products (the higher the return on assets of fixed assets and the rate of turnover of working capital, the lower the costs per 1 ruble of production and unit costs for economic elements (labor tools, labor materials)).
RPf = P/PF ,
where
P -profit
before tax;
PF -average annual cost of production assets.
It is defined as the ratio of net profit to all assets of the enterprise
wherePE -net profit;
WB -
balance currency.
It is defined as the ratio of the amount of income from financial investments to the amount of financial investments.
RFV = PFV / PV,
wherePFV -profit of the enterprise from financial investments for the period;
FV -amount of financial investments.
Profitability of production is defined as the ratio of gross profit to the cost of production.
Rpr-va \u003d VP / SS,
whereVP -gross profit;
SS –
production cost.
The payback period of equity is found by dividing the average annual value of equity by the net profit of the analyzed period. This indicator is important for owners and shareholders, because through an assessment of its value and dynamics, they, as a rule, draw conclusions about the effectiveness of their capital management.
The payback period of equity is calculated using the following formula:
SK per.ok \u003d SK / PE,
whereSC -average cost of own capital;
PE -net profit.
Let's analyze return on equity. In foreign sources, the return on equity ratio is referred to as ROE - Return On Equity (or Return on shareholders' Equity), and shows the share of net profit in the company's equity capital.
Let's start with determining the economic essence of the return on equity ratio, then we will give a calculation formula for both domestic and foreign forms of accounting and do not forget to also talk about the standards for this indicator.
Return on equity. Economic essence of the indicator
Who needs this return on equity ratio?
This is one of the most important ratios used by investors and business owners, which shows how effectively the money invested (invested) in the enterprise was used.
The difference between return on equity (ROE) and return on assets (ROA) is that ROE does not show the effectiveness of all assets (like ROA), but only those that belong to the owners of the enterprise.
How to use the return on equity ratio?
As mentioned above, this indicator is used by investors and owners of the enterprise to assess their own investments in it. The higher the value of the coefficient, the more profitable the investment. If the return on equity is less than zero, then there is reason to think about the feasibility and efficiency of investments in the enterprise in the future. As a rule, the value of the coefficient is compared with alternative investments in shares of other enterprises, bonds and, in extreme cases, in a bank.
It is important to note that too high a value of the indicator can negatively affect the financial stability of the enterprise. Do not forget the main law of investment and business: more profitability - more risk.
Return on equity. Calculation formula according to balance sheet and IFRS
The formula for the return on equity ratio consists of dividing the net profit of the enterprise by its own capital:
Return on Equity Ratio = Net Income/Equity
For convenience, all profitability ratios are calculated as a percentage, so do not forget to multiply the resulting value by 100.
According to the domestic form of financial statements, this ratio will be calculated as follows:
Return on equity ratio = line 2400 / line 1300
The data for the formula is taken from the Profit and Loss Statement and the Balance Sheet. Previously, in the old form of financial statements (until 2011), the coefficient was calculated as follows:
Return on equity ratio = line 190/line 490
According to the IFRS system, the coefficient has the following form:
Dupont formula for calculating return on equity
To calculate the return on equity ratio is often used dupont formula. It breaks the coefficient into three parts, the analysis of which allows you to better understand what affects the final coefficient to a greater extent. In other words, this is a three-way analysis of the ROE. DuPont's formula is:
Return on equity ratio (Dupon formula) = (Net income/Revenue) * (Revenue/Assets)* (Assets/Equity)
The Dupont formula was first used in financial analysis in the 20s of the last century. It was developed by the American chemical corporation DuPont. Return on equity (ROE) according to the DuPont formula is divided into 3 components: operating efficiency (profitability of sales),
efficiency of asset use (asset turnover),
leverage (financial leverage).
ROE (according to the Dupont formula) = Return on Sales * Asset Turnover * Leverage
In fact, if you reduce everything, you get the formula described above, but such a three-factor selection of components allows you to better determine the relationship between them.
Return on equity ratio. Calculation example for KAMAZ OJSC
To assess the return on equity, it is necessary to obtain the financial statements of the company under study. On the official website of the KAMAZ OJSC enterprise for the last 4 years, you can take financial data. An alternative option is to use the InvestFunds service, which allows you to get data for several quarters and years. The figure below shows an example of importing balance data.
Calculation of the return on equity ratio for KAMAZ OJSC. income statement
Calculation of the return on equity ratio for KAMAZ OJSC. balance sheet
Calculate the coefficients for 4 years:
Return on equity ratio 2010 = -763/70069 = -0.01 (-1%)
Return on equity ratio 2011 = 1788/78477 = 0.02 (2%)
Return on equity ratio 2012 = 5761/77091 = 0.07 (7%)
Return on equity ratio 2013 = 4456/80716 = 0.05 (5%)
There is an increase in the indicator from -1% to 5% over 4 years. However, investing in the shares of this company is not advisable, because. the rate of return is less than investing in alternative projects. For example, in 2013 the bank rate on deposits was about 10%. It was more efficient to invest free cash in a deposit than in OJSC KAMAZ (5%<10%).
Return on equity. Standard
The average ROE in the US and UK is 10-12%. For inflationary economies, the value of the coefficient is higher. According to the international rating agency S&P, the return on capital ratio of Russian enterprises was 12% in 2010, the forecast for 2011 was 15%, for 2012 - 17%. Domestic economists believe that 20% is normal for return on equity.
The main criterion for evaluating the return on equity ratio is its comparison with the alternative return that an investor can receive from investing in other projects. As discussed in the example above, investing in OJSC KAMAZ was not efficient.
most often measured in years. Also, the indicator can be displayed in days, weeks, months, quarters, etc.
Explanation of the essence of the indicator
The payback period of equity is the most important coefficient for owners. The value of the indicator reflects the period during which their capital will pay off. This means that the use of equity capital will generate net income, which is equal to its current amount. The indicator is calculated as the ratio of the average annual amount of equity capital to the amount of net profit for the year.
Standard value:
The normative value depends entirely on the considerations of the owners about the efficiency of the use of their capital. If the company is a commercial organization and the owners created it to generate profit, then you can determine the quality of the use of equity capital by comparing the current payback with the payback for alternative areas of investment. The easiest way is to compare the return on equity in the studied business entity and the return on investment in various financial instruments (deposit, diversified portfolio of shares, etc.). If the return on equity is significantly lower than the values for alternative directions, then it is unsatisfactory.
Of course, a negative value of the indicator is unacceptable and indicates a decrease in the welfare of the owners.
When analyzing, it is necessary to consider the indicator in dynamics, because a stable decrease in payback will indicate a constant increase in the efficiency of the company.
Directions for solving the problem of finding an indicator outside the normative limits
As in the case with other indicators of profitability, payback is formed under the influence of absolutely all areas of the company. Based on the calculation formula, it is possible to reduce the payback by increasing the efficiency of the use of financial resources, which will return part of the equity to the owners, or by ensuring the growth of net profit. To increase the latter, it is necessary to take measures to maximize income or reduce costs.
Calculation formula:
Payback period of equity = Average annual cost of equity / Net profit (loss) (1)
Payback period of equity = 100 / Return on equity (2)
Average annual cost of equity = Amount of equity at the beginning of the year/2 + Amount of equity at the end of the year/2 (3)
Calculation example:
JSC "Web-Innovation-plus"
Unit of measurement: thousand rubles
Payback period of equity (2016) \u003d (1503 / 2 + 1494 / 2) / 491 \u003d 3.05 g.
Payback period of equity (2015) \u003d (1494 / 2 + 1403 / 2) / 473 \u003d 3.06 g.
Thus, the efficiency of the JSC "Web-Innovation-plus" is high, and the return on equity is about 3.05 years. This is significantly higher than the payback of alternative instruments. The return on investment in securities is now low. Therefore, we believe that equity management is at the proper level.