Calculation of the financial risk ratio

The financial risk ratio is calculated as the ratio of borrowed capital to equity and shows how much borrowed funds are attracted per 1 ruble. invested in assets of own funds.

Conclusion: in 2012, the company is more independent of borrowed funds.

Based on the calculated indicators, we form the final table 2.

table 2

Calculation of balance sheet liquidity indicators

The balance is considered liquid if its condition allows, due to the rapid sale of funds for the asset, to show urgent liabilities on the liability. In this case, the asset and liability of the balance sheet is divided into 4 groups:

GROUP A1 - includes the most liquid assets. Consists of cash and short-term financial investments.

GROUP A2 - includes quickly realizable assets, which require a short time to turn into cash. These include goods shipped, accounts receivable with a maturity of up to 12 months. The liquidity of this group depends on the demand for products and their competitiveness. forms of payment, timeliness of shipment, etc.

GROUP A3 - slow-moving assets. These include inventories, work in progress, finished goods, and goods that take a long time to convert into cash.

GROUP A4 - hard-to-sell assets. These include fixed assets. long-term financial investments.

In the liabilities of the balance sheet, 4 groups are also distinguished:

GROUP P1 - the most urgent liabilities that need to be paid off during the current month (accounts payable)

GROUP P2 - medium-term liabilities with a maturity of up to 1 year (loans and credits)

GROUP P3 - long-term liabilities (long-term bank loans 5-10 years).

GROUP P4 - equity at the disposal of the organization.

The balance is considered absolutely liquid if A1? P1, A2? P2, A3? P3, A4? P4.

Let's enter the calculation results into the table.

Table 3

	Previous period	Reporting period	Asset group	Previous period	Reporting period

2011 year 2012

A1> P1 A1> P1

A2> P2 A2> P2

A3> P3 A3> P3

A4< П4 А4< П4

Conclusion: The balance sheet is considered liquid, since the company has enough funds to pay off its obligations.

1) Current liquidity ratio (coverage ratio) - characterizes the overall assessment of the liquidity of assets and shows the extent to which current payables are secured by current assets. Since the company pays off short-term liabilities mainly at the expense of current assets, then, therefore, if current assets exceed current liabilities in value, the company is considered to be successfully operating.

Conclusion:> 1, therefore, the company covers its liabilities with current assets. The enterprise was more successful in 2011.

2) Ratio of quick liquidity (urgent liquidity) - is an intermediate ratio and shows how much can be repaid by current assets minus reserves. Calculated by the formula:

Conclusion: In accordance with the obtained quick liquidity ratios, the company operated more efficiently in 2011.

3) Absolute liquidity ratio - shows what part of short-term liabilities can be, if necessary, repaid immediately. It is determined by the ratio of the most liquid assets to short-term liabilities. This ratio is the most stringent criterion for the company's solvency.

Conclusion: In accordance with the obtained absolute liquidity ratios, the company was more solvent in 2011.

The calculations of the indicators are presented in Table 4.

Table 4

Since the values ​​of the obtained indicators are greater. than the recommended values, it can be concluded that the enterprise's financial resources were used ineffectively.

The well-being of an enterprise is not always achieved at its own expense. Effective existence in the market often requires investment. External loans increase the profitability and competitiveness of a business project.

But with the uncontrolled attraction of third-party resources, you can get into a debt trap. To avoid this situation, economists have developed a measure of sustainability called the financial risk ratio. Let's figure out how it counts and what it shows.

Financial Risk Ratio - Definition

The coefficient determines the ratio of capital attracted from outside to own funds. It characterizes the degree of dependence of an economic object on borrowed financial injections.

In other words, the indicator allows you to assess the level of freedom in making decisions on attracting additional money for the development of the enterprise and the distribution of income.

Economists in narrow circles call it the coefficient of attraction, leverage, capitalization. In simple terms, it means the amount of dependence of the company on borrowed funds.

The KFR indicator is quite multifaceted. The result of its calculation additionally indicates the efficiency of using the company's equity capital within the framework of its activities.

As a result of the analysis of the leverage ratio, the following conclusion is drawn:

• most of the organization's assets are borrowed funds - it is financially dependent, the risk indicator is high;
• the main share of funding falls on its own treasury - the company is financially independent, the KFR, respectively, is low.

“The generally accepted normal value is defined in the range of 0.5 and less. The critical number is considered 1 or higher. Average boundaries are not always applicable, much depends on the scope of the object. For accurate calculations, an individual approach to the situation is important. "

Oleg Nikiforov, financial analyst

Financial Risk Ratio Formula

The international formula for determining the CFR looks like this:

KFR = ZK / SK, where:

• KFR - financial risk;
• ЗК - borrowed capital;
• SK - the size of own funds.

The balance sheet, according to the legislation of the Russian Federation, is kept in form 1. Thus, the formula for domestic reality is as follows:

KFR = p. 1400 + p. 1500 / p. 1300.

In this case, the values ​​reflect:

• p. 1400 - line of section 4 of the accounting report Long-term liabilities;
• p. 1500 - line of section 5 Short-term liabilities;
• line 1300 - line of section 3 Capital and reserves.

In practice, borrowed funds include investments from individuals and legal entities, all assets borrowed from financial institutions. Own funds include money directly contributed by the owner or several founders.

The result of a simple count in the schematic diagram indicates the following:

The indicator in dynamics is used to determine the financial stability of a business.

Financial risk ratio calculation scheme

We figured out the formula and the indicators necessary for the calculation. Let's move on to the practical plane and consider how the CFR is determined using a specific example.

Open Joint Stock Company Zorya as of January 2018 has:

• own funds, taking into account the authorized capital, additional funds and a margin of 100 million rubles;
• bank loans related to long-term liabilities in the amount of 50 million rubles;
• periodic short-term liabilities to suppliers, tax service, pension fund, equal to 13 million rubles.

The capitalization ratio of the JSC is: (50 + 13) / 100 = 0.63. The indicators are slightly overestimated, but not critical. The enterprise has reserves for increasing activity in the field of borrowed resources.

“The KFR standard for some sectors of the economy is determined in the framework of 2-2.5 units. For example, 3-4 is considered normal for trading companies. One should not jump to conclusions; the assessment of sustainability should be comprehensive. "

Nina Belskaya, economist

What does the financial risk ratio show?

KFR is a mutually beneficial indicator for both the owner and the investor. The method of expert assessment of credit risk allows an entrepreneur to:

• assess the need for additional loans;
• select the optimal source of financing for business development;
• determine the line of non-payment of loans, after which interest rates rise significantly;
• identify the risks associated with bankruptcy;
• identify the real state of affairs before launching a new investment project, issuing securities;
• make a rating of the company by type of activity.

In turn, a potential investor to determine:

• stability of the enterprise;
• the level of profitability;
• ability to pay off debts in a timely manner;
• the volume of future investments;
• risks of ruin of the company;
• profit prospects;
• the attractiveness of the object in terms of the acquisition of shares, bonds;
• effective use of own funds for development planning.

The calculation of the KFR helps not only depositors, but also other subjects of the economic process - banking institutions, suppliers, partners, ordinary employees, shareholders, insurance companies.

The financial risk ratio must be present in the periodic reporting and statistics of the enterprise so that the interested person has access to information over time.

Bottom line: what is the financial risk ratio used for?

KFR is an important indicator of any business project, regardless of its scale and focus. Determines the amount of borrowed capital per unit of equity. In practice, it shows the stability of the company in the market and the level of attractiveness for investment.

Calculated using a simple formula based on accounting documents. It is equally useful for the owner, as well as for creditors, partners, any interested parties.

To assess the financial stability of an enterprise in the long term, in practice, indicators (coefficient) of financial leverage are used.

Financial leverage ratio - represents the ratio of the company's borrowed funds to its own funds (capital). This coefficient is close to. The concept of financial leverage is used in economics in order to show that with the use of borrowed capital, an enterprise forms financial leverage to increase profitability and return on equity. The financial leverage ratio directly reflects the level of financial risk of the company.

The formula for calculating the financial leverage ratio
Financial Leverage Ratio = Liabilities / Equity

Under liabilities, various authors use either the sum of short-term and long-term liabilities or only long-term liabilities. Investors and business owners prefer a higher leverage ratio because it provides a higher rate of return. On the contrary, creditors invest in enterprises with a lower financial leverage ratio, since this enterprise is financially independent and has a lower risk of bankruptcy. The financial leverage ratio is more accurately calculated not according to the balance sheets of the enterprise, but according to the market value of assets. Since the value of the company often the market value of assets exceeds the book value, which means that the level of risk of this company is lower than when calculated at book value.

Financial leverage ratio = (Long-term liabilities + Short-term liabilities) / Equity

Financial leverage ratio = Long-term liabilities / Equity

If we describe the financial leverage ratio by factors, then according to G.V. Savitskaya's formula will be as follows:

CFL = (Share of borrowed capital in total assets) / (Share of fixed capital in total assets) / (Share of working capital in total assets) / (Share of equity in current assets) * Maneuverability of equity)

Financial leverage effect
The leverage ratio is closely related to the leverage effect, which is also called the leverage effect.
The effect of financial leverage shows the rate of increase in the return on equity with an increase in the share of borrowed capital.

Effect of financial leverage = (1-Income tax rate) * (Gross profitability ratio - Average interest on a loan from the company) * (Amount of borrowed capital) / (Amount of equity capital of the company)

(1-Income tax rate) is a tax corrector showing the relationship between leverage and different tax regimes.

(Ratio of gross profitability - Average interest on a loan from an enterprise) represents the difference between the profitability of production and the average interest on loans and other obligations.

(Amount of borrowed capital) / (Amount of equity capital of the enterprise) is the ratio of financial leverage (leverage) characterizing the structure of the company's capital and the level of financial risk.

Standard values ​​of the financial leverage ratio
The standard value in domestic practice is the value of the leverage ratio equal to 1, that is, equal shares of both liabilities and equity.
In developed countries, as a rule, the leverage ratio is 1.5, that is, 60% of borrowed capital and 40% of equity.

If the coefficient is greater than 1, then the company finances its assets at the expense of borrowed funds from creditors, if it is less than 1, then the company finances its assets at its own expense.

Also, the normative values ​​of the financial leverage ratio depend on the industry of the enterprise, the size of the enterprise, the capital intensity of production, the period of existence, the profitability of production, etc. Therefore, the coefficient should be compared with similar enterprises in the industry.

High values ​​of the financial leverage ratio can be found in enterprises with a projected cash flow for goods, as well as for organizations with a high proportion of highly liquid assets.

When an enterprise or company is created, many hope for a long, fruitful and efficient existence. But, alas, this is not always the case. And it is necessary to acquire external debts, and it happens that investments are needed. Thus, there is capital that does not belong to the owner of the enterprise. And along with it, financial risks arise. What it is? What does the financial risk ratio mean? Why is it considered, how is it interpreted?

What is called the Financial Risk Ratio?

To determine the level of potential problems, this indicator is considered. The financial risk ratio (leverage or attraction) indicates the ratio of funds attracted from external sources to own funds. It is a comparative tool that shows the potential level of freedom in decision-making, income distribution, as well as the possibility of attracting additional money for the needs of the enterprise.

Where is it used?

The financial risk ratio plays an important role in the bond, loan and credit markets. Moreover, it has a mutual application: it can be used by both an entrepreneur and a potential investor. For the owner of the company, the financial risk ratio shows the state of the enterprise (and the tendencies to change it - the features of development). Also, informing about it is very important from the point of view of planning the future.

For an investor, the financial risk ratio is an indicator of the stability of the enterprise. So, if we consider a company for which it is 0, we can say that everything was fine with it up to this point. But due to some reason or reasons, things have staggered, so a small financial aid will not hurt the enterprise. But if the financial risk ratio has reached a value of 1 or even exceeded it, then there are two options:

1. Ignore this enterprise as such, which constantly needs fin. help. Probably, the situation will not change anytime soon.
2. Take advantage of the situation by supporting the company. After all, if it still goes bankrupt, then the investor will be able to claim production secrets, territory, buildings, equipment as payment of debts. If the enterprise is of significant interest, then such a scheme looks very real.

But how, in fact, do you know the financial risk ratio? And for this it must be calculated.

How to calculate the financial risk ratio?

It may seem like it's awful to count something. Many economic formulas are a real headache. But not in this case. The balance sheet financial risk ratio is one of the simplest. Let's first take a look at the formula and then move on to explaining it.

K fr = ZK / SK

1. K fr is the financial risk ratio.
2. ZK is borrowed capital. Everything that was borrowed from a banking institution or invested by a separate legal entity or individual.
3. IC is equity capital. This includes all funds that belong to the actual owner / founder of the company, for which the financial risk ratio is calculated.

Interpretation of the obtained values ​​and application in practice

You have calculated the data, received some values ​​- what to do next? What allows us to say about the financial risk ratio? The formula has been used, and now the resulting figures need to be interpreted. This is required in order to assess the financial stability of the enterprise in the event of shocks. The coefficient depicts how many units of attracted funds are attributed to 1 money of your investments. The higher the indicator, the greater the dependence of the company on investors and external debts. The coefficient should be as small as possible. An indicator less than 0.5 is considered optimal. With a value of 1, the enterprise has significant financial risks, and a number of measures must be taken to correct the current situation.

Conclusion

It should be borne in mind that this ratio does not mean that the company is about to go bankrupt, even though it can reach values ​​of 2, 3 or 5. It simply indicates that in the event of some problems, capital flight or something similar to the work of the enterprise can be significantly stalled. For example, you can consider this option: the total capital of the company is 1000 rubles. 200 of them belong to the investor.

If he suddenly withdraws his money, then the remaining 800 will help him survive. But if the values ​​are changed? It is unlikely that 200 rubles will be enough for quality work. And it helps to understand the line when you can take money, and when not, the financial risk ratio. Although the balance sheet formula points to an acceptable margin, borrowing should be treated with caution - after all, someone else's money is taken, and for a short time, and their own money is returned in larger quantities and forever. Optimal action is to reduce the coefficient to zero.

6. Financial leverage ratio or financial risk ratio - the ratio of debt to equity.

Kfr = Borrowed capital / Equity = (line 590 +690) / 490.

This ratio is considered one of the main indicators of financial stability. The higher its value, the higher the risk of capital investment in a given enterprise, the lower the value of this ratio, the more stable the financial position of the enterprise.

Kfr shows how much borrowed funds are attracted for 1 ruble of own funds.

Kfr (at the beginning of the year) = 575/1118 = 0.514

Kfr (at the end of the year) = (25 + 696) / 1374 = 0.525

At the beginning of the year, for every 1 ruble of own funds invested in the assets of the enterprise, 0.51 ruble falls on borrowed funds (at the beginning of the year and 0.52 at the end of the year).

The value of the financial risk ratio depends on:

Share of borrowed capital in total assets;

Shares of fixed capital in the total amount of assets;

The ratio of working capital and fixed capital;

Shares of equity and working capital in the formation of current assets;

Equity shares in equity working capital.

At the analyzed enterprise, there were changes in the capital structure. The share of equity capital tends to decrease. During the reporting period, it decreased by 0.4 percentage points, as the growth rate of equity capital is lower than the growth rate of borrowed capital. The financial risk ratio increased by 1.04 percentage points. This indicates that the financial dependence of the enterprise on external investors has slightly increased.

Table 4

Calculation of indicators of financial stability

Financial soundness ratios	Calculation method	Normal limitation	For the beginning of the year	At the end of the year	Deviation	Explanation
1. Ratio of concentration of equity capital (financial independence)	K s.k. = p. 490 / p. 700 (Own qty / Balance currency)	Ks.k. = 0.6, the more the better	0,66	0,656	-0,004	Shows what part of assets is formed from own sources of funds
2. Ratio of concentration of debt capital	To z.k. = line 590 + 690 / line 700 (Borrowed credit / Balance currency)	Kz.k. = 0.4, less is better	0,34	0,344	0,004	Shows what part of assets is formed at the expense of borrowed funds of a long-term and short-term nature
3. Dependency ratio	Kf.z. = p. 700 / p. 490 (Balance currency / Own stock)		1,51	1,52	0,01	Shows the amount of assets accounted for by the ruble of own funds
4. Ratio of sustainable financing (financial stability)	To u.f. = p. 490 + 590 / p. 700 (Own Capital + Long term duties) / Balance currency	it is desirable to approach 1	0,66	0,67	0,01	Determines the share of the company's assets financed from sustainable sources (III and IV sections of the balance sheet)
5. Ratio of maneuverability of equity capital	K m = p. 490 - p. 190 / p. 490 (Own Capital - Non-current assets) / Equity	K m. = 0.5 (from 0 to 1) a growth trend is desirable	0,515	0,419	-0,096	Determines the share of equity capital used to finance the current activities of the enterprise
6. Ratio of financial leverage (financial risk)	To f.r. = p. 590 + 690 / p. 490 (borrowed k-l / own k-l)	less is better	0,514	0,525	0,01	Shows how much borrowed funds are attracted for 1 ruble. own funds

The assessment of changes that have occurred in the capital structure can be different from the perspective of investors and the enterprise. For banks and other creditors, the situation is more reliable if the share of clients' equity capital is high. This eliminates financial risk. Enterprises are interested in attracting borrowed funds for two reasons:

1) interest on servicing the borrowed capital is considered as an expense and is not included in taxable profit;

2) the cost of paying interest is usually lower than the profit received from the use of borrowed funds in the company's turnover, as a result of which the return on equity capital increases.

In a market economy, a large and ever-increasing share of equity capital does not at all mean an improvement in the position of an enterprise, the ability to quickly respond to a change in the business climate. On the contrary, the use of borrowed funds indicates the flexibility of the enterprise, its ability to find loans and repay them, that is, trust in it in the business world.

There are practically no standards for the ratio of borrowed and equity funds, since different industries have different capital turnover.

Each company can determine for itself the standard of the financial risk ratio:

1.Let's define the standard of the borrowed capital:

A) find the share of fixed capital in the balance sheet asset and multiply it by 0.25 (798/2095 x 0.25 = 0.0952);

B) find the specific weight of the working capital in the balance sheet currency and multiply it by 0.5 (1297/2095 x 0.5 = 0.3095);

C) add these results and get the standard value of the loan capital of the ZK (0.0952 + 0.3095 = 0.4047 = 0.4);

2. Determine the standard value of the financial risk ratio:

A) find the standard value of the equity capital of the UK (1 - 0.4 = 0.6);

B) find the standard value of the financial risk ratio: KFR = ZK / SK = 0.4 / 0.6 = 0.67.

If the standard value of the KFR is less than its actual value, then the degree of financial risk is high. In our case, the standard value of KFR = 0.67, and the actual value = 0.52 - this indicates the stability of the enterprise.

The surplus or lack of planned sources of funds for the formation of reserves is one of the criteria for assessing the financial stability of an enterprise, according to which 4 types of financial stability are distinguished:

1. Absolute financial stability (stocks are less than the amount of own working capital):

З (reserves)< СОС (собственные оборотные средства)

This ratio shows that all stocks are fully covered by circulating assets, i.e. the enterprise does not depend on external sources, this situation is extremely rare.

2. Normal financial stability, in which stocks are greater than own working capital, but less than the planned sources of their coverage:

SOS (own circulating assets)< З (запасы) < ИФЗ (источники финансовых запасов).

IFZ = SOS + line 610 (short-term loans and borrowings) + accounts payable to suppliers and contractors and other creditors.

The given ratio corresponds to the situation when a successfully operating enterprise uses various sources of reserves to purchase stocks.