Debt capital concentration ratio on the balance sheet. Debt capital concentration ratio: optimal value
Borrowed capital and its features
Borrowed capital is an element in the calculation of many economic indicators that, to one degree or another, characterize the efficiency of an enterprise.
Multiplication borrowed money shows the success of the enterprise and speaks of the trust of creditors, and also helps to increase the profitability of equity. At the same time, the enterprise takes on the risk of impossibility of settlements on financial obligations, that is, the risk of loss of solvency and reduction of financial stability.
Features and disadvantages of debt capital
Features and advantages of debt capital:
- The higher the credit rating of the enterprise, the wider the opportunities for obtaining borrowed capital;
- Borrowed capital ensures the growth of the financial potential of the enterprise, which has a positive effect on the expansion of assets and an increase in the growth rate of economic activity;
- Debt capital has a lower cost when compared to equity capital;
- Borrowed capital leads to an increase in the return on equity ratio (the ratio of the enterprise's net profit to the average cost of its own funds).
Disadvantages of borrowing capital:
- With an increase in the share of borrowed funds in the total amount of capital, the risk of deterioration in financial stability and loss of solvency increases;
- When the loan interest rate decreases, the use of previously received loans for the enterprise becomes unprofitable due to the availability of cheaper alternative sources credit resources;
- Lenders' decisions to extend credit often depend on the availability of third-party guarantees or collateral.
Concept of gearing ratio
Definition 2
The debt capital ratio is a coefficient characterizing the amount of borrowed funds in the total capital.
The ratio is determined based on the balance sheet data. It, in turn, is the main financial document of any organization and is a table with numerical values of the value of the enterprise’s property, as well as its equity capital and borrowed funds. The cost of a company's borrowed funds is reflected in its second part, called liabilities.
The debt capital ratio is defined as the ratio of borrowed capital to the total amount of assets/liabilities of the balance sheet (to all capital) and shows what amount of borrowed capital falls on a unit of financial resources.
$Кзк = ЗК/А = ЗК/П$, where:
- Кзк – debt capital ratio,
- ZK – amount of borrowed capital,
- A – the amount of assets of the enterprise,
- P – the amount of liabilities of the enterprise.
There is also a concentration ratio of equity capital. It is calculated in a similar way. In this case, the sum of the coefficients of concentration of equity and borrowed capital equals one.
Coefficient value
The value of the debt capital ratio is considered normal when its size does not exceed 60-70%. The most optimal situation is in which the shares of equity and debt capital from the total amount are equal, that is, the value of the debt capital ratio is 0.5 (50%).
Note 1
The value of the debt capital ratio has a positive assessment if it decreases. It is generally accepted that the lower the indicator, the more stable the financial condition of the enterprise. At the same time, a too low value indicates a missed opportunity to increase the return on equity capital, since the organization is too cautious in attracting debt. At the same time, a ratio above the norm indicates the organization’s strong dependence on creditors.
The final stage of assessing financial stability commercial organization is the calculation and analysis of relative indicators (financial ratios) of financial stability, which are sometimes called coefficients of market stability of an enterprise. Analysis of these coefficients is carried out in dynamics, in comparison with recommended values and with data from other enterprises.
When carrying out the analysis, it is advisable to consider the dynamics of two groups of qualitative indicators:
1st group - characterizes the structure of sources of funds. Indicators for this group are formed by comparing certain groups of property and sources of its coverage. Conventionally, this group of indicators can be considered capitalization indicators.
2nd group - characterizes the quality of costs associated with maintenance external sources. Conventionally, this group of indicators can be considered coverage indicators. Using the indicators of this group, an assessment is made of whether the enterprise is able to maintain the existing structure of sources of funds.
Main coefficients of financial stability 1st group (capitalization)
are:
Equity concentration ratio
(financial autonomy, independence) - is defined as the ratio of the enterprise’s own capital to the total balance sheet of the enterprise.
Ksk = Own capital
Balance currency
This coefficient shows specific gravity equity capital in the total amount of funds advanced in its activities. It is believed that the higher the share of equity capital, the greater the chances of an enterprise to cope with market uncertainty.
The normal minimum value of this indicator is estimated at 0.5. If the value is greater than 0.5, then the company can cover all its obligations with its own funds.
The growth of the equity capital concentration ratio in dynamics is positive factor, indicates an increase in the level of financial stability and a decrease in the level of dependence on external investors.
In addition to this indicator is the following coefficient:
♦ Concentration ratio of attracted funds
It is defined as the ratio of the amount of funds raised by the enterprise to the total balance sheet of the enterprise.
Kpc = Funds Raised
Balance currency
Its value shows the share of funds raised in the total amount of funds advanced for the activities of the organization. The growth of the indicator in dynamics is a negative factor, indicating a decrease in the level of financial stability and an increase in the level of dependence on external investors. The sum of the values of the indicators Ksk and Kps equals 1 (or 100%).
Funding ratio
Ratio of equity capital to borrowed funds:
Kfin = Own capital
Involved funds
The value of the indicator shows what part of the organization’s activities is financed from its own funds, and what part is financed from borrowed funds. This indicator is used to generally assess the level of financial stability. Recommended value of this indicator: Kfin > 0.7; optimal Kfin = 1.5. In other words, for every ruble of borrowed funds there should be at least 0.7 rubles. own funds.
Ratio of attracted and own funds(capitalization) - is defined as the ratio of the sum of long-term (LO) and short-term liabilities (CL) to the organization’s equity capital (SC):
Kz/s = (DO + KO) = Raised funds
SK Equity
This ratio gives the most general assessment of the financial stability of the enterprise. The value shows how many rubles of attracted capital are per 1 ruble. own capital. The growth of the indicator in dynamics indicates the increasing dependence of the enterprise on external investors and creditors, i.e. about some decrease in financial stability, and vice versa. This indicator is especially widely used when assessing the financial risk associated with a given enterprise.
The financial stability of an enterprise is the state of the enterprise’s financial resources in which it is able to ensure continuous manufacturing process, expansion of business activities and not experience difficulties with financing.
The analysis of financial stability is carried out using the balance sheet of the enterprise (Form 1) and is carried out by comparing the size and structure of its assets and liabilities. With regard to financial stability, the following types are distinguished:
- Absolute financial stability means that there are no borrowed funds in the structure of the enterprise's liabilities. Such financial stability practically does not occur.
- Normal financial stability is a state in which an enterprise ensures its activities with its own capital and long-term liabilities
- An enterprise becomes financially unstable when the enterprise becomes dependent on short-term loans to finance its activities (no one gives long-term ones anymore)
- Critical financial stability occurs when the economic activity of an enterprise is not supported by sources of formation of liabilities and the enterprise is on the verge of bankruptcy.
To analyze the financial stability of an enterprise, there are a number of coefficients that are calculated using appropriate formulas. The main ones are:
Equity capital concentration ratio (autonomy ratio).
This coefficient characterizes the share of the owners of the enterprise in the total amount of funds invested in the enterprise. If this ratio is high, this means that the company is financially stable and weakly dependent on external creditors. An addition to this indicator of financial stability is the concentration ratio of attracted (borrowed) capital - their sum is equal to 1 (or 100%).
At present, no one can give a clear answer as to what the concentration of equity capital should be to maintain normal financial stability. It all depends on the region in which the company is located and the industry in which it operates. For industrial enterprises in countries former USSR the most common figure is 60% or more, for banks - 15%.
Financial dependency ratio.
This indicator of the financial stability of an enterprise is calculated by the formula:
From this formula it is clear that the coefficient of financial dependence is the inverse of the coefficient of concentration of equity capital. This indicator is better perceived by some people when assessing financial stability, because with a coefficient of 1.6 it becomes clear that for every $1 of owner funds there is $0.6 of borrowed funds.
Equity to debt ratio.
The formula by which this indicator of the financial stability of an enterprise is calculated looks like this:
This indicator for analyzing the financial stability of an enterprise is a variation of the previous two coefficients and is always one less than the financial dependence coefficient. Also created for ease of perception.
Debt capital concentration ratio.
This indicator of financial stability is calculated by the formula:
It is also closely related to the previous three indicators and is calculated for people who are comfortable with this particular form of representation about the proportion of equity and borrowed funds in the capital structure. Great importance The coefficient can signal both confidence on the part of banks and the pre-default state of the enterprise, a low one - either a cautious and balanced management policy, or a low level of confidence on the part of creditors. In any case, a deviation noticed during the analysis of financial stability should cause caution and subsequent clarification of the reasons.
To analyze the financial stability of an enterprise, it is not necessary to calculate all the previous four indicators; it is enough to choose the most convenient for yourself or for the person who will make the decision - they are still in different forms show the same thing.
Debt capital structure ratio.
This indicator of financial stability is determined by the formula:
This coefficient of financial stability of the enterprise shows what part of the liabilities consists of long-term loans. A low value of this indicator means that the company is highly dependent on short-term loans, and therefore on current market conditions.
Long-term investment structure coefficient.
This indicator of financial stability is obtained by the formula:
This ratio is calculated in order to obtain information about what part of fixed assets and other non-current assets is financed by external investors.
Equity capital agility ratio.
This indicator of financial stability is calculated using the formula:
Using this indicator of the financial stability of the enterprise, it is possible to determine which part is used in current activities and which is capitalized. This indicator may vary depending on the industry of the enterprise; the standard value is 0.4 - 0.6.
Each large enterprise seeks to optimize its capital structure. It is formed from own and borrowed sources. Moreover, their ratio should be maintained at established level. Analytics allows you to determine a company’s need for a particular source of financing its activities.
One of the components of the method of financial stability of an organization is debt concentration ratio. It is calculated according to an established formula and has a clearly defined meaning. How to calculate the presented indicator, as well as interpret the result? There is a certain technique.
The essence of the coefficient
Volume of paid financial sources in the balance sheet structure. Each enterprise must organize its activities using its own capital. However, attracting borrowed capital opens up new prospects for the organization.
A company that wisely uses paid sources of funds can purchase new high-tech equipment and introduce new production line, expand sales markets, etc. To do this, the level of borrowed funds must remain within certain limits. It is installed for each enterprise separately.
Attracting long-term and short-term loans increases the company's risks. However, the higher they are, the larger size the organization can potentially receive net profit. The state of the share of paid liabilities must be monitored by the enterprise's analytical service.
The essence of borrowed funds
The value of the debt capital concentration ratio when calculating financial stability is extremely high. There are a number of similar sources of funding characteristic features. Their involvement carries both benefits and additional costs.
A company that has outside investors opens up new prospects and opportunities for itself. Its financial potential is growing rapidly. At the same time, the cost of the presented sources remains quite acceptable. With the proper use of additional funds, the profitability of the company can be increased. In this case, profits increase.
However, attracting investment sources from outside has a number of negative characteristics. Such capital increases risks and reduces financial stability indicators. It is quite difficult to arrange such a procedure. Costs largely depend on the level of development of a particular market. The organization's income will be reduced by the cost of using investors' funds (loan interest).
Methodology for determining the indicator
Balance sheet data will help you calculate debt capital concentration ratio. Formula simple for calculations. It reflects the relationship between the indicator of external loans and the balance sheet currency. This is the actual debt burden that is placed on the organization. The calculation formula looks like this:
CC = Z/B, where: Z is the amount of loans (short-term and long-term), B is the balance sheet currency.
Calculations are made based on the results of the operating period. Most often it is 1 year. However, for some companies it is more profitable to make payments quarterly or semi-annually.
Paid sources of funding are presented in lines 1400 and 1500 of Form 1 financial statements. The total balance amount is indicated in line 1700. This is a simple calculation, the result of which will help draw conclusions about the harmonious organization of the capital structure.
Standard
Using the above system, you can calculate the debt capital concentration ratio. The normative value will allow you to analyze the result obtained. For the presented indicator, there is a certain range of values within which the balance sheet structure can be called effective.
The concentration ratio of external sources of financing can range from 0.4 to 0.6. The optimal value depends on the type of activity of the company and the characteristics within the industry. For example, enterprises with a pronounced seasonality of activity may have low performance concentration of credit funds.
To draw a conclusion about the correctness of the structure of financial sources, it is necessary to study the presented indicator of competing firms. This way it will be possible to calculate the intra-industry indicator. The coefficient value obtained during the study is compared with it.
Financial benefit
In some cases, the amount of credit funds of an organization may be too large or, conversely, low. This indicates wrong organizational structure balance. The above norm for the debt capital concentration ratio is applicable for most domestic companies. Foreign organizations may have a larger number of loans in their liability structure.
If a company, during the study, determines that the concentration ratio is below the norm, it means that it has accumulated a large number of borrowed financial sources. This is a negative factor for further development. In this case, the risks of non-repayment of the debt increase. The cost of the loan will increase. It is necessary to reduce the amount of borrowed funds in liabilities.
If the indicator, on the contrary, is higher than the norm, the company does not attract additional resources for its development. This results in lost profits. Therefore, a certain amount of funds from third-party investors must be used by the company.
Calculation example
To understand the essence of the presented methodology, it is necessary to consider an example calculation debt capital concentration ratio. Balance formula which was given above is used during the study.
For example, the company ended with a total balance sheet currency of RUB 343 million. Its structure determined 56 million rubles. long-term liabilities and 103 million rubles. short-term debts. In the previous period, the balance sheet amounted to RUB 321 million. Short-term liabilities were 98 million rubles, and long-term sources of financing were 58 million rubles.
In the current period, the concentration ratio was as follows:
KKt = (56 + 103) / 343 = 0.464.
In the previous period, the same indicator was at the level:
KKp = (98 + 58) / 321 = 0.486.
The result obtained is within the established norm. In the previous period, the company's activities were largely financed from third-party sources. The company has prospects for attracting credit funds. The presented indicator must be calculated in conjunction with other calculation systems.
Financial leverage
The indicator allows analysts to correctly assess dependence of the debt capital concentration ratio from the business environment. The combination of these two calculation methods makes it possible to establish the level of efficiency in using existing capital and the possibility of further increasing it through credit sources.
Leverage shows the benefit that an organization receives when using borrowed funds. To do this, the organization's return on equity is calculated. In the course of conducting such a study, the company's need to attract external sources of financing is established, as well as the current return on total capital.
At correct use loans can increase your net profit. The funds received are invested in the development and expansion of the business. This allows you to increase your final net profit. This is precisely the meaning of using paid investor funds.
Profitability
Needs to be considered common system analytical calculation. Therefore, along with the presented methodology, other indicators are also determined. Their combined analysis allows us to draw correct conclusions about the capital structure.
One such indicator is return on debt capital. For the calculation, net profit for the current period is taken (line 2400 of Form 2). It is divided into the amount of long-term and short-term loans. If the net profit is higher than the amount of paid sources, the company harmoniously uses funds received from third-party investors in its activities.
Return on debt capital is studied over time. This allows you to draw conclusions about further actions.
Structure management
It becomes the first indicator in developing the financial strategy of the organization. Based on the calculations carried out, the company’s management can decide on further attraction of loans and credits.
During planning, the need for additional sources is determined. Risks, future profits, as well as production development paths are assessed. The cost of investors' capital is determined. Based on research, the company decides on the possibility of additional attraction of borrowed capital.
Having considered what it is debt capital concentration ratio, method of its calculation and approach to interpreting the result, you can correctly assess the structure of the balance sheet and make a decision on further development organizations.
The agility coefficient remains approximately at the same level over the period under review, which indicates the stability of the company.
Index net working capital is defined as the difference between current current assets (minus the debt of participants for contributions to the authorized capital) and current liabilities, including short-term loans and borrowings, accounts payable, debt to participants for the payment of income, reserves for future payments and other short-term liabilities. Net working capital is necessary to maintain the financial stability of the enterprise, since the excess of working capital over short-term liabilities means that the enterprise not only can pay off its short-term obligations, but also has reserves for expanding activities.
The optimal amount of net working capital depends on the characteristics of the company’s activities, in particular on its scale, sales volumes, the speed of inventory turnover and accounts receivable. A lack of working capital indicates the inability of the enterprise to repay short-term obligations in a timely manner. A significant excess of net working capital over the optimal requirement indicates the irrational use of the enterprise's resources. The standard value is greater than zero.
The company is financially stable and can pay off its short-term obligations.
Autonomy coefficient (financial independence coefficient ): own funds (section 3) / balance sheet currency.
The autonomy coefficient shows the share of the enterprise's own funds in the total amount of sources of financial resources of the enterprise. The restriction rate must be >= 0.5.
In this case, it is considered that the enterprise is not seriously dependent on external sources of financing, in which case the lender's risk is minimized. This means that the company is able to pay off 50% or more of its obligations from its property
Debt capital concentration ratio. It is calculated as the ratio of borrowed capital (4+5) to the balance sheet currency. Shows the degree of dependence of the enterprise on external loans. The higher the value, the higher the risk level for shareholders. The normal value is from 0.5 to 1.
In this case, the enterprise’s dependence on external loans is extremely small.
Debt to equity ratio. The degree of information content of the coefficient under consideration and the above coefficient of concentration of borrowed capital is the same. Both indicators increase with increasing proportion of debt (liabilities) in the financial structure of the enterprise. But still, the degree of dependence of an enterprise on borrowed funds is expressed more clearly in the ratio of borrowed and equity funds. It shows which funds the company has more - borrowed or own. The more the ratio exceeds 1, the greater the enterprise's dependence on borrowed funds.
Coef. loan. funds/own capital =
Conclusion: since most of the ratios are not within the norms, therefore, this enterprise is in an unstable financial condition.
Cost-benefit analysis
Profitability (profitability) is the result of a complex strategic decision. Profitability reflects the influence of liquidity indicators, asset management and debt regulation on the results of the enterprise.
The main indicators of this block include return on advanced capital and return on equity. When calculating, you can use either balance sheet profit or net profit.
When analyzing profitability in a spatiotemporal aspect, three key features should be taken into account:
– a temporary aspect when the enterprise makes a transition to new promising technologies and types of products;
– risk problem;
– valuation problem, profit is assessed over time, equity for a number of years.
However, not everything can be reflected in the balance sheet, for example, trademark, ultra-modern technologies, well-coordinated personnel do not have a monetary value, therefore, when choosing financial decisions, it is necessary to take into account the market price of the company.
Sales profit ratio (profit margin on sales) is defined as the result of dividing profit after tax by revenue; shows profit per unit of turnover,
Sales profit ratio = 
If this ratio is below the industry average, it means that product prices are relatively low or costs are too high, or a combination of both is possible (Perhaps there is the use of aggressive marketing tactics, known in the economic literature as “predatory pricing” "), i.e. a temporary sharp reduction in prices for goods that become below the level of production costs, with the aim of ousting competitors from the market. After some time, the company again raises prices to the original level or sets prices higher than before).
This indicator determines the amount of profit from each ruble of sales. It largely depends on the speed of funds turnover, i.e. Long turnover of capital will lead to the fact that the company will need more profits to achieve satisfactory financial results.
The calculations show that at the end of the reporting period it decreased slightly. the amount of profit from each ruble of sales has decreased.
Basic productive force assets (basic earning power) is the result of dividing net earnings before interest and taxes (EBIT) by the company's total assets, expressed as a percentage. This indicator measures the total productive capacity of a firm's assets before taxes and financial expenses are taken into account. It is useful when comparing firms with different conditions taxation and with different volumes of participation of raised funds in the financial structure of the enterprise.
Basic productive capacity of assets = _________
EBIT is generated throughout the year, while the “Assets” item reflects the position at the end of the year. Therefore, it would be more appropriate to use the average as the denominator. The same approach is useful when calculating the other two indicators; ROA and ROE (return on total assets and return on equity),
Profit on total assets (return on assets ROA), also income from total assets, capital productivity. Calculated as the ratio of net profit to total assets and shows income from the use of assets minus interest and taxes, expressed as a percentage
Return on Total Assets (ROA) =
The return on assets ratio is higher than the current market lending rate (based on the duration of the reporting period) or equal to it, then from the point of view of creditors this means that the company is able to cope with servicing long-term loans at the expense of its operating profits (meaning that payments on loans are priority). The company's creditworthiness is considered normal.
Return on capital employed (return on capital employed - ROCE, or rate of return on investors capital), or return on capital, as well as profit (income) on assets used. When comparing different companies, analysts often rely on this ratio. The numerator of the fraction indicates the total amount of income of all investors (interest of creditors, net profit of shareholders - owners of preferred and common shares), the denominator indicates long-term financial resources at the disposal of the company, i.e. the sum of all funds invested by both shareholders and creditors. The final result is usually less than 1, so it is multiplied by 100 and expressed as a percentage.
Profit on use capital =
By the end of the reporting period, profit on capital used increased.
In countries with a market economy, the coefficient under consideration is often used when assessing socially beneficial monopoly enterprises involved, for example, in water supply, telecommunications, etc. (Theoretically, a monopoly position could bring the enterprise large profits (income) on the capital used, however, social control and feedback existing in countries with market economies restrain the growth of the cost of its products so that the profit on the capital used does not significantly exceed the costs of obtaining it).
Conclusion: return on capital, equity and debt increased. Consequently, the company effectively uses its own capital. At the same time, there is an increase in profitability in core activities, profitability of sales, turnover and overall profitability, which indicates the productive activity of the workforce.
Assessing the potential bankruptcy of a company
The final stage of the work is the assessment of potential bankruptcy. Signs of bankruptcy for an organization are the inability to satisfy the demands of creditors for monetary obligations or to fulfill the obligation to make mandatory payments if the corresponding obligations and obligations are not fulfilled within 3 months from the date on which they must be fulfilled.
To do this, we apply the Altman formula, which was proposed in 1968. Based on this model, it is possible to determine the integral indicator of the threat of bankruptcy. The improved model looks like:
Z = 0.7*X1 + 0.88X2 + 3.18*X3 + 0.42*X4 + 0.99*X5
X1 - profit before tax / value of all assets
X2 - reinvested profit / asset value
X3 - own working capital / assets
X4 - from sales / asset value
X5 - own funds / borrowed funds.
Regulatory restrictions:
If Z > 2.675, then the probability of bankruptcy within 2-3 years is possible, but very low.
If Z > 1.81, but up to 2.675 the probability is high
If Z > 2.676 to 2.99, then the probability of bankruptcy is possible
If Z > 2.99 – very low
In our case, the value of Z = 5.81, therefore, the latest regulatory limit (Z > 2.99) is suitable and we can conclude that the probability of bankruptcy for this enterprise is very low.
Conclusion
The purpose of analyzing the financial condition of the company is to build an effective financial management system , aimed at achieving the strategic and tactical goals of its activities, adequate to market conditions, and searching for ways to achieve them. The results of the activities of any enterprise are of interest to both external market agents (primarily investors, creditors, shareholders, consumers and producers) and internal ones (enterprise managers, employees of administrative and management structural divisions, employees of production departments).
When conducting such an analysis, the strategic objectives of developing the financial policy of an enterprise are:
Maximizing enterprise profits:
Optimizing the capital structure of the enterprise and ensuring its financial stability:
Achieving transparency of the financial and economic state of the enterprise for owners (participants, founders), investors, creditors:
Ensuring the investment attractiveness of the enterprise:
Creation of an effective enterprise management mechanism;
The enterprise's use of market mechanisms to attract financial resources.
The importance of analyzing the financial and economic state of an enterprise can hardly be overestimated, since it is the basis on which the development of the financial policy of an enterprise is built. Based on the data from the final analysis of the financial and economic state, almost all directions of the enterprise’s financial policy are developed, and the effectiveness of the management decisions made depends on how well it is carried out. The quality of the financial analysis itself depends on the methodology used, the reliability of the financial statements, as well as the competence of the person making the management decision in the field of financial policy. The information base for conducting in-depth financial analysis is the balance sheet, profit and loss statement and some forms of enterprise accounting.
Comparison of financial ratios is used as the main analysis tools. In addition to comparing ratios over time for a single company or comparing several companies, it is recommended to compare the company's financial data with the values of industry indices that are developed by information and analytical rating agencies (the most famous of them are Standard & Poors, Moodys Investor Service, Value Line, Dan & Bradsreet, AKM, and Financial Times). These news agencies offer industry statistics that compare an individual company's financial data with industry averages. Benchmarking allows you to compare a company's activities with the activities of a specific group of comparable companies. But all financial ratios are calculated on the basis of unadjusted financial statements.
Analysis based only on financial accounting and reporting is insufficient. An accounting assessment is a recording of the past, previously made decisions; it does not provide information about the sufficiency of assets (capital), earned profitability and cash flows to continue activities while maintaining and developing competitive positions.
But the analysis of “yesterday’s” indicators based on accounting is not fully reliable, there are a number of reasons for this:
Manipulation of financial indicators. To reduce tax payments or create a favorable opinion in the market about the development of affairs in the company. The choice among the available accounting methods (accounting for depreciation, inventories) and the independently interpreted inclusion of affiliated companies in the consolidated statements allows you to manipulate the value of accounting profit. In addition, the idea of the effectiveness of core activities may distort the presence of speculative profits
Inflation. Affects the amount of costs.
The difference when choosing one of the inventory accounting methods when inflation is high is significant. The FIFO method, compared to the weighted average price method, allows you to show higher profits, accordingly generates higher tax deductions and reduces available funds. Reflection of depreciation on different stages company life cycle.
The actual depreciation of fixed assets does not always fit into the schemes of accounting standards for depreciation. If actual depreciation slows, accounting profits will be understated. Understatement especially affects new investments of the company, and for old projects it is possible to overestimate profits. The presence of a non-monetary component of profit.
For example, high profit rates can result from the write-off of liabilities, revaluation of financial investments Industry specifics of profit calculation. According to international standards, several cost accounting options are allowed, depending on chosen method
But still, one of the main problems of accounting reporting is the almost complete ignorance of intangible assets. Today's type of economy depends critically not only on the availability of large fixed capital; moreover, for many companies the cost of plants and equipment is not significant. Other factors of production play an increasingly important role, in particular the art of managing intangible assets such as brand, the quality of the workforce and the firm's organizational ability to innovate. In addition, intellectual capital can be used simultaneously for many purposes and has increasing profits depending on the scale of application (as knowledge is accumulated). And despite their fundamental importance to any company, these assets in most cases remain unreported as company assets. Intangible assets are reflected in the company's expenses, but are not capitalized, followed by amortization, thereby reducing profit in the reporting period in which they were incurred. main reason underestimation of intangible assets is the difficulty of their assessment, problems arising with property rights, and the possible imitation of knowledge by competitors.
An analysis of the financial condition showed that the enterprise's activities are financed from its own funds. The balance sheet of the enterprise can be considered sufficiently liquid.
Calculations of the turnover of elements of current assets led to the conclusion that the management of the enterprise sufficiently uses the available reserves, since changes in the turnover rate reflect an increase in the production and technical potential of the enterprise.
It must be said that the low level of inventories, which significantly affects the overall turnover of the enterprise’s assets; a flexible policy of settlements with the customer and the client on terms of mutual benefit, including, in particular, a system of discounts - all this speaks of strategically well-planned capital management. The analysis also showed that the return on equity in the reporting year is growing at a slow pace. This caused a decrease in the return on each ruble of invested funds over the past year.
Enterprises are the main links in economic management and form the basis of the economic potential of the state.
The more profitable the company, the more stable its income, the greater its contribution to the social sphere of the state, to its economic potential, and finally, the better the lives of the people working at such an enterprise.
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Thesis >> EconomicsASPECTS ANALYSIS FINANCIAL STATES ENTERPRISES 1.1 Meaning financial analysis for successful development enterprises 1.2 Techniques analysis financial state enterprises 1.3 Information support for economic analysis, system...
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Analysis financial state enterprises (32)Thesis >> Economics
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