Financial stability ratios. Own funds ratio: definition and calculation

The analysis carried out to identify financial stability is very important both for the enterprise itself and for its investors. It allows you to assess the state of financial, economic and core activities and draw preliminary conclusions about the advisability of investing in its activities with various sources of capital.

general characteristics

Coverage ratios is an indicator that can assess the ratio of equity to debt capital of an enterprise. On its basis, investors make a conclusion about the solvency and attractiveness of financing for them the main activities of the company.

The equity ratio is analyzed in the short term; many financiers and economists classify it as a group of liquidity indicators. That is, it shows the structure in the form of a ratio of funds (debt and equity).

In the event that own financial sources are insufficient in the current period, the entire production process is financed from credit funds. In the case when not only current, but also some part of non-current assets are formed from borrowed funds, this indicates low stability and solvency of the enterprise. The asset coverage ratio must be consistent with the standard.

Normative value

Availability of reserves

Another important coefficient related to the analysis of the solvency and stability of an enterprise is the provision of balance sheet asset reserves with its own sources. It reflects the share of inventories and costs that were covered using their investment sources.

The inventory coverage ratio is calculated as follows:

KOZ = Own funds in circulation/Inventories.

In more detail, this formula will look like this:

KOZ = (Equity + Long-term liabilities - Non-current assets) / Inventories.

If you make calculations based on the information in Form No. 1 of the accounting report, the inventory coverage ratio will be as follows:

KOZ = (s.1300 + p. 1400 - p. 1100)/s. 1210.

The standard value of the calculated indicator must be in the range of 0.6-0.8. At least 60-80% of a company's total inventory must be produced using its own capital.

Business sectors

The working capital ratio is recommended to be slightly higher than 10% for a number of industries. The lowest minimum value of this ratio of the provision of balance sheet assets with working capital is recommended in the field of mechanical engineering, trade and catering, non-production types of consumer services and housing and communal services. The standard here is 0.1.

The minimum level of equity capital (0.15) should be slightly higher for enterprises producing building materials, construction, transport, radio, as well as sales and logistics.

20% of own liabilities should cover the assets of such enterprises as chemical, metalworking, engineering, light industry, agriculture, science and other economic sectors.

The highest level of balance sheet asset coverage is observed in the fuel industry and gas supply. The equity ratio here must be at least 0.3.

Analysis example

Let’s say that at the beginning of the analyzed year, own sources were equal to 201.21 million rubles. At the end of the year they already amounted to 190.14 million rubles. At the beginning and end of the period, non-current assets amounted to RUB 125.31 million, respectively. and 124.8 million rubles. At the same time, current assets of the year at the beginning of the period amounted to 200.24 million rubles, and at the end - 256.81 million rubles.

The security ratio must not only be determined, but also its changes over the year must be tracked.

First, the indicator at the beginning of the period is calculated:

KOSS1 = (201.2 -125.31)/200.24 = 0.379.

At the end of the year, the security ratio will be equal to:

KOSS2 = (190.14-124.8)/256.81 = 0.254.

The change in the calculated indicator will be:

ΔCOSS = 0.254/0.379 = 0.671.

The ratio decreased by 49% during the analyzed period.

How to understand the meaning of analysis

The security ratio, the calculation formula for which was given above, has its own interpretation. Thus, if the indicator increased in the analyzed period, this indicates an increase in the financial stability of the company, its equity capital or a decrease in accounts payable.

However, if the security ratio has decreased, as was presented in the example above, this indicates a decrease in financial stability and equity capital. Sometimes this occurs due to an increase in debt capital in the balance sheet structure.

Having become familiar with the essence and methods of calculating and interpreting such an instrument as the security ratio, every investor and manager of a company can draw conclusions about the advisability of financing its activities with borrowed capital. The presented indicator indicates the stability and solvency of the enterprise. That is why it is so important in the analysis of the financial, economic, core and investment activities of each company. This will help adjust the development path of the enterprise and make it as attractive as possible for investors. After all, they are the ones who will help expand production capabilities with the right approach to business.

Enterprise sustainability indicators

These indicators are based on the fact that almost any enterprise operates not only on the basis of its own funds, but also borrowed funds or simply temporarily located at the company. A typical case is accounts payable - debts to the budget or to suppliers for goods already received but not paid for.

Debt to equity ratio

To calculate this indicator, the formula is used:

SK: ZK, where

The value of this coefficient must be at least 0.7, that is, it is considered normal that there are more borrowed funds than own funds. But exceeding this ratio is very dangerous - this situation means that the owners themselves own little in the company. In the event that creditors demand immediate repayment of debts, there will be nothing to repay the debts with except the property of the company, and then there will be nothing left of the company.

In the example, the indicators are as follows:

At the beginning of the year - 29,705: (3000 + 11,195) = 2.09;

At the end of the year - 30,655: (3000 + 13,460) = 1.86.

This means that the vast majority of a firm's production is controlled by its own owners.

1.3.2 Autonomy coefficient. This ratio is also called the financial independence ratio. To calculate it, the entire equity capital (line 490 of the Balance Sheet) is divided by the amount of the total capital of the company (line 700 of the Balance Sheet, the final one, sometimes called the “Balance Sheet currency”). Autonomy must be greater than 0.5.

In the example:

At the beginning of the year - 29,705: 43,900 = 0.68;

At the end of the year - 30,655: 47,115 = 0.65.

The indicators are very good, the enterprise is completely independent.

The inverse indicator is the coefficient of financial dependence. What is considered here is not how independent the company is, but rather how dependent it is on others.

Financial dependency ratio

The formula used for calculation is:

ZK: OK, where

ZK - the sum of long-term and short-term liabilities (the sum of lines 590 and 690 of the Balance Sheet - lines 640 and 650).

OK - the entire capital of the company as a whole (line 700 of the Balance Sheet).

Since this indicator is the inverse of the autonomy coefficient, it should not exceed 0.5, otherwise the amount of debts will exceed the amount of the enterprise’s own property.

At the beginning of the year - (3000 + 11,195): 43,900 = 0.32;

At the end of the year - (3000 + 13,460): 47,115 = 0.35.

Quite acceptable indicators. By the end of the year, the company's debts increased, but this is not critical.

Inventory coverage ratio with own working capital

This indicator is interesting because it allows you to determine whether the company buys raw materials for production at its own expense or not. In other words, will the firm be able to continue production if it is not given credit?

Formula for calculation:

(SK - VNO): Salary, where

SK - equity capital (line 490 of the Balance Sheet);

Salary - inventories (line 210 of the Balance Sheet).

In the given example:

At the beginning of the year - (29,705 - 13,490): 19,200 = 0.84;

At the end of the year - (30,655 - 14,995): 20,100 = 0.78.

Here the company is doing somewhat worse than in general. The supply of raw materials and materials is not completely closed; some of them are purchased through credits and loans. And this figure has worsened over the year. In itself it is not critical, and the rest of the indicators are good. Therefore, you just need to pay attention to this fact and remember it.

Financial stability ratio

The financial stability ratio is the ratio of the amounts of a company’s equity capital and its long-term loans to the total Balance Sheet (“Balance Sheet Currency”).

(line 490 Balance + line 590 Balance): line 700 Balance.

It is believed that it is very beneficial for an enterprise to have long-term obligations, since they will not have to be repaid soon, and therefore, in the short term, long-term obligations can be conditionally considered as their own funds. Thus, the presence of a large number of long-term loans at the current time only strengthens the financial stability of the company.

At the beginning of the year - (29,705 + 3000): 43,900 = 0.74;

At the end of the year - (30,655 + 3000): 47,115 = 0.71.

The financial stability ratio for this balance sheet is very high.

Permanent asset index

The essence of this indicator is that we find out what part of our equity capital consists of our non-current assets. The formula used for this is:

VNO: SK, where

VNO - non-current assets (line 190 of the Balance Sheet);

At the beginning of the year - 13,490: 29,705 = 0.45;

At the end of the year - 14,995: 30,655 = 0.49.

These are quite good indicators. They mean that a company, using its own capital, can purchase raw materials, pay employees, that is, fully organize work without resorting to borrowings and loans.

The opposite indicator is the percentage of working capital.

Maneuverability coefficient

They consider it like this:

(SK - VNO): SK, where

VNO - non-current assets (line 190 of the Balance Sheet);

SK - equity capital (line 490 of the Balance Sheet).

When non-current assets are subtracted from equity, current assets remain.

At the beginning of the year - (29,705 - 13,490): 29,705 = 0.55;

At the end of the year - (30,655 - 14,955): 30,655 = 0.51.

The higher this ratio, the easier it is for a company to maneuver its resources.

Non-current assets are primarily fixed assets and intangible assets. This property is durable, long-term, acquired once and for many years. And current assets are inventories, accounts receivable, money, securities, that is, what quickly comes and goes no less quickly. You can turn money into raw materials, raw materials into accounts receivable, and then back into raw materials very quickly. This is the effect of maneuverability. The more means for maneuver an enterprise has, the more stable it is.

Equity / Balance = p.1300 / p.1700

End 2013 1930008/3293652=0.586

Beginning 2013 1634816/2809673=0.582

Characterizes the independence of the enterprise from borrowed funds and shows the share of its own funds in the total cost of all funds of the enterprise. The standard value is >0.5, which means the level of independence of the VOMZ OJSC enterprise from creditors is normal and in the event of a requirement to repay all debts, the enterprise will be able to satisfy them by realizing 42% of its own capital generated from its own sources.

Financial stability ratio

(Equity + Long-term liabilities) / Balance sheet = (p.1300 + p.1400) / p.1700.

End 2013 (1930008+91159)/3293652=0.61

Beginning of 2013 (1634816+3912)/2809673= 0.58

The share of financing sources that the enterprise can use for a long time was 61%. Standard value? 80%, i.e. this indicates that the VOMZ OJSC enterprise is dependent on external sources of financing and an unstable situation is possible in the future.

Debt to equity ratio (leverage)

Borrowed and attracted sources / Equity = (p.1400 + p.1510) / p.1300.

End 2013 (91159+152431)/1930008=0.13

Beginning of 2013 (3912+0)/(1634816)=0.002

Shows how many units of borrowed funds account for each unit of equity. The dynamics by the end of the year are positive, which indicates the greater dependence of the enterprise on investors and creditors. Recommended value for enterprise< 0,7. На ОАО «ВОМЗ» данный показатель равен 0,13, что говорит о высокой финансовой устойчивости предприятия.

Permanent asset index

Non-current assets / Own capital = p.1100 / p.1300.

End 2013 1191181/1930008=0.62

Beginning 2013 937563/1634816=0.57

The permanent asset index shows what share of sources of funds provides financing for the non-current assets of the enterprise, i.e. the main one is often production capacity.

Maneuverability coefficient

Own working capital / Own capital = (p.1300 - p.1100) / p.1300.

End 2013 (1930008-1191181)/1930008=0.38

Beginning 2013 (1634816-937563)/1634816=0.43

Shows what part of own working capital is in circulation, i.e. in the form that allows you to freely maneuver these funds, and which is capitalized. The ratio must be high enough to provide flexibility in the use of the enterprise's own funds.

A decrease in the indicator indicates a possible slowdown in the repayment of accounts receivable or a tightening of conditions for the provision of trade credit from suppliers and contractors. An increase indicates a growing ability to pay current obligations.

The organization does not use long-term loans and borrowings since the sum of the maneuverability coefficient and the permanent asset index is equal to one. Own sources cover either fixed or current assets, therefore the amount of fixed assets and non-current assets and own working capital in the absence of long-term borrowed funds is equal to the amount of own funds:

The ratio of security of current assets with own working capital

Own working capital / Current assets = (p. 1300 - p. 1100) / p. 1200.

End 2013 (1930008-1191181)/2102471=0.35

Beginning 2013 (1634816-937563)/1872110=0.37

Characterizes the availability of the enterprise's own working capital, necessary for its financial stability. Standard value =0.1, which indicates the enterprise’s ability to pursue an independent financial policy.

Ratio of provision of material reserves with own working capital

Own working capital / Inventories = (p. 1300 - p. 1100) / p. 1210.

End 2013 (1930008-1191181)/ 929,206 =0.79

Beginning of 2013 (1634816-937563)/ 768,646 =0.91

Shows what portion of inventories and costs is financed from own sources. It is believed that the coefficient of provision of material reserves with own funds should change within the range of 0.6 - 0.8, i.e. 60-80% of the company's reserves should be formed from its own sources. At the VOMZ OJSC enterprise, 79% of the company's reserves are formed from its own sources, which indicates its financial stability.

Coefficient of the real value of fixed assets and material circulating assets in the property of the enterprise

(Fixed assets + Inventories) / Balance = (p.1150 + p.1210) / p.1600.

End 2013 (1099172 + 929206)/3293652=0.62

Beginning of 2013 (871401 + 768646)/2809673 = 0.58

Determines what share of the value of property consists of means of production. Shows what potential the enterprise has if new partners appear and the production process is provided with means of production. Based on business practice data, a limitation is considered normal when the real value of property is more than 0.5 of the total value of assets. Drawing a conclusion, we can say that the enterprise has production potential, and it is advisable for suppliers or buyers to enter into an agreement with them.

Drawing a conclusion after analyzing the financial stability of the VOMZ OJSC enterprise, we can say that it is dependent on external sources of financing, has sufficient autonomy and is able to satisfy the creditor’s requirements to repay debts from its own sources. The financial stability of the enterprise is also indicated by 79% of reserves formed from its own sources and production potential, which is also included in the standard indicators: 0.62.

The working capital ratio may indicate the share of inventories and production costs that are financed from general organizational sources. In the vast majority of cases, this indicator is used to determine the financial stability of a company.

The coefficient under consideration is the ratio of the level of own funds that cover costs and inventories to the cost of these same costs. Each person interested in the calculation can carry out this operation using a formula or using a specialized computer program.

To understand the key features of the coefficient, it is necessary to familiarize yourself with the essence of the guarantees, the financial values, the established formula, the optimal parameters, the main concepts, as well as the procedural aspects of the analysis of indicators.

The essence of guarantees

The working capital ratio is a special indicator for determining the financial characteristics of the stability of an enterprise. It can also be a kind of indicator of the state of working capital. To calculate the corresponding indicator, a special formula is used.

It is worth noting that the organizational one can be considered unsatisfactory, and the company itself insolvent in cases where the ratio under consideration at the end of the next reporting period is less than 10%. This standard is fully regulated by the order of the Federal Bankruptcy Administration No. 56-r.

Those organizations that, after calculation, received an unsatisfactory indicator, can use special methods to correct the situation. For example, you can carry out an additional assessment of your own funds. It is important to remember that the results of the corresponding operation can only be displayed in the next reporting period after the decision is made.

Economic sense

The coefficient under consideration can be obtained by dividing equity by the cost of inventories and expenses.

The classic formula is as follows:

Kozss = current assets owned by the organization / available inventories

It is worth noting that the indicator in the numerator can be called working capital. This value can fully reflect the value of current assets in relation to non-long-term liabilities. Own working capital may indicate the company's ability to pay certain obligations after the sale of assets.

In other words, working capital is a specific indicator of solvency. The calculation of the indicator under consideration can be carried out in accordance with the information contained in the accounting documentation of the balance sheet.

Financial features

Value scheme

The coefficient under consideration characterizes a certain share of the organization’s current assets, the financing of which is carried out from its own funds. The standard value is 0.1.

The indicator can either increase or decrease. In the first case, the organization's equity capital will increase taking into account the reduction in debt obligations to creditors. The indicator of the company’s financial stability and the number of solvent counterparties are also experiencing significant growth.

If the ratio decreases, equity capital decreases with an increase in risks directly related to the occurrence of accounts payable. In addition, it can significantly increase the risk of loss of financial stability.

If after each calculation the coefficient becomes higher, then this fact indicates the strengthening of the stable position of the enterprise. In this case, changes in the structural components of the activity are not required. To ensure stable funding streams for a company, it is important to leave a certain amount of equity in capital.

Formula Explanation

The formula for the supply ratio using the organization’s working capital is as follows:

K2 = (skap + zd - adkh) / akh

It is worth noting that the standard indicators for the coefficient may change directly depending on the industry within which the organization carries out its professional activities. An acceptable coefficient is 0.1, but for any industry the standard value of the coefficient is determined within 0.3 or 30 percent.

As for foreign enterprises, they do not apply this coefficient. This is due to the fact that the production sphere and the right to own property are clearly separated from each other, and the presence of certain financial obligations to creditors by the company cannot in any way affect its operating efficiency.

Optimal parameters

Current federal legislation establishes the fact that the optimal value of the coefficient is an indicator exceeding 0.1. Experts say that other values ​​may indicate the unsatisfactory condition of the organization and the possibility of it being declared bankrupt.

An indicator less than 0 may indicate that the company uses exclusively funds provided by creditors to organize its own activities, which, in turn, confirms an unstable financial condition.

Meanings and examples

The standard ratio should not be less than 0.1 for the stable functioning of the company.

A negative value indicates the following factors:

• the company does not have its own capital;
• the entire working budget was formed exclusively with the help of borrowed funds, which indicates the presence of significant debt obligations to creditors;
• additional categories of debt may appear under the enterprise’s obligations;
• the likelihood of the company losing financial stability is increased

It is worth noting the fact that the vast majority of companies cannot achieve an acceptable indicator throughout their entire life cycle.

To understand the features of calculating the coefficient, it is necessary to consider the following example.

As part of the calculation, you need to find out the current value of the SOS provision indicator at the beginning and end of a specific reporting period.

The following initial information is proposed for the solution:

• the total amount of capital and reserve fund is 250 million rubles at the beginning and 270 million at the end of the period;
• level of non-current assets – 140 and 160 million;
• the amount of current assets is 240 and 265 million.

The current value at the beginning of the period fully corresponds to the standard indicator. This is confirmed by calculation using the established formula. As for the final segment of the reporting period, the coefficient will be within 0.4, which also corresponds to the standards.

The results obtained indicate that the financial condition of the enterprise is at a stable level, and the possibility of changing the situation in the near future is unlikely.

Main concepts about the working capital ratio

As part of the production and sales activities of the organization, liquidity indicators and the ratio of provision with its own working resources must be calculated. This is done to analyze the current state of the enterprise and to draw up a forecast for the coming reporting periods.

The result can be presented as a percentage for a more visual representation of the situation. To do this, the resulting coefficient is multiplied by 100. If the result is negative, this directly indicates that the company’s balance sheet structure is not effective.

In any case, own sources of finance should prevail in such quantities that they can be used to fully cover non-current assets. This is also carried out to ensure stable operating activities. That is why the negative value should be eliminated as quickly as possible.

As for the standards for Russian organizations, they are fully regulated by the provisions of the current federal legislation. Therefore, in order to monitor the efficiency of the company, this indicator must be determined without fail. Its value in the normal state always exceeds 0.1.

In cases where, during the activities included in the analysis, it is determined that the indicator has a negative value, then this can only indicate negative trends, including a partial or complete absence of own funds in capital.

Details of calculations and standards

In the process of professional organizational activity, an up-to-date assessment of the company’s dependence on external sources of financing plays a significant role.

In this framework, the debt coverage ratio serves as an assessment tool, which is calculated using the following formula:

Kpdss = SK / ZK

The corresponding ratio can reflect the actual situation after applying all organizational indicators. It also helps determine whether the company has enough of its own funds to form inventory.

Practice shows that business managers quite often encounter certain difficulties when they need to separately find both equity and borrowed capital.

To form a final conclusion about the financial stability and solvency of a company, it is necessary to consider the equity ratio together with the current liquidity ratio.

Analysis of indicators

In accordance with the provisions of a special regulation of the Federal Office of Procedures, the normal value of the coefficient in each specific case must be greater than 0.1 or 10%. If this indicator is not achieved, then we can speak with complete confidence about the recognition of the organizational structure as insolvent within a certain financial period.

Stability will be minimal in cases where the organization actively takes advantage of the opportunity to attract credit funds from outside. This, in turn, leads to the formation of an impressive amount of debt obligations to creditors.

To analyze the indicators of the economic sustainability of an organization, it is important to pay attention to the need to study the coefficient in question in dynamics. In other words, each organization is recommended to make calculations at the beginning and end of the financial period.

In cases where the value increases at the end of the reporting period, but remains below 10%, then this may also indicate factors that are improving the financial condition of the enterprise. It is worth noting that the coefficient is practically not used in arbitration practice, but is used by arbitration managers to assess the structural characteristics of the balance sheet.

— a financial indicator characterizing the sustainability of an enterprise’s business model in many aspects. What is its significance and how is the corresponding indicator calculated?

What does the inventory coverage ratio show?

The ratio under consideration refers to the key indicators of the financial stability of the company: it allows you to assess whether the enterprise has enough working capital in terms of ensuring the optimal level of inventories.

In general, the ratio reflects the ratio of the company's own working capital to its inventories in the analyzed period. In turn, own working capital can consist of equity capital and long-term liabilities, reduced by non-current assets. In some cases, deferred income is also added to the amount of equity capital and long-term liabilities.

It is also possible that the ratio will be considered as the ratio of the difference between current assets and short-term liabilities to inventories.

There are quite a few approaches and criteria according to which the amount of reserves in an organization is determined. In many cases, Russian accountants use international experience and determine the structure of inventories, thus, in accordance with IFRS criteria.

Inventory coverage ratio: formula

In general, the formula for calculating the corresponding indicator will look like this:

KO = OS / Z,

KO - security ratio;

OS - the company's own working capital;

Z - reserves.

In turn, the OS indicator is determined by the formula

OS = (SC + DO) - VO,

SK - equity capital;

DO - long-term liabilities;

VO - non-current assets.

As we noted above, an indicator reflecting the amount of income for future periods can be added to the sum of IC and DO in the specified formula - let’s call it DBP.

Second version of the formula coefficient of provision of material reserves with own funds involves, as we noted above, considering the corresponding coefficient as the ratio of the difference between current assets and short-term debt to inventories. In this case, the formula for calculating it will look like this:

KO = (OA - KO) / Z,

OA - non-current assets of the company as a whole;

KO - short-term liabilities.

Specific values ​​for the above indicators are taken from the company’s balance sheet, taking into account the following correspondences:

• indicator 3 corresponds to line 1210 of form No. 1, approved by order of the Ministry of Finance of the Russian Federation dated July 2, 2010 No. 66n;
• for the SC indicator - line 1300;
• for the DO indicator - line 1400;
• DBP indicator - line 1530;
• VO indicator - line 1100;
• OA indicator - line 1200;
• KO indicator - line 1500.

It can be noted that the inventory on the balance sheet (on line 1210) also includes the cost of raw materials and materials that entered production, but were not written off in the cost of production. In this case we are talking about the remains of work in progress.

You can get acquainted with the features of including work in progress balances in inventories in the article .

Inventory coverage ratio: interpretation

The optimal value of the coefficient under consideration is 0.6-0.8. This means that about 60-80% of a firm's inventory is produced or purchased using its own capital. If this indicator is lower, this may indicate an excessive credit burden on the business.

If it is larger, then perhaps the company’s own capital is not invested very effectively (but this, of course, is a very controversial interpretation; it is only valid in cases where loan rates are significantly lower than the profitability of the business).

Actually, the fact that the company has a sufficient amount of capital to ensure the required volumes of inventories reduces its need for loans. In general, the higher the coefficient under consideration, the more investment attractive the enterprise can be.

In some cases, the coefficient can also take a negative value. As a rule, this means that the company’s working capital indicator is also negative. Most often, this situation arises if the company has a high credit load, but the company’s business model may provide for the prompt conversion of inventories into revenue - if their turnover is characterized by good dynamics. If this is so, then a negative equity ratio in the company will be considered the norm.

Thus, the standard for this coefficient can be determined taking into account the specifics of the company’s business model.

The coefficient, the calculation of which we have considered, is best compared in dynamics. For example, using data on balance sheets in different years. A drawdown recorded in one period can be compensated by a sharp increase in the value of the corresponding indicator in other time periods, so its average value may well be considered to correspond to the optimal level. Investors, studying indicators of financial stability, such as the inventory coverage ratio, usually make decisions based on their consideration in the context of comparison with the results of the enterprise's activities in different periods.

Results

Inventory coverage ratio with own funds- an indicator related to those that can assess the current state of affairs in the company: the higher it is, the more stable the business model of the enterprise is usually. But successful business development is quite possible even with negative values ​​- for example, if the enterprise produces products with a high turnover ratio.

You can learn more about the use of various indicators for inventories when organizing business management in the articles: