Leverage. Financial leverage: concept and methods of assessment. Financial leverage profitability

Consider the financial leverage of an enterprise, economic sense, the formula for calculating the effect financial leverage and an example of its assessment for the company JSC RusHydro.

Financial leverage of the enterprise (analogue: leverage, leverage, financial leverage, leverage) - shows how the use of the company's borrowed capital affects the amount of net profit. Financial leverage is one of the key concepts of financial and investment analysis enterprises. In physics, using a lever allows you to lift more weight with less effort. There is a similar principle of operation in economics for financial leverage, which allows, with less effort, to increase the amount of profit.

The purpose of using financial leverage is to increase the profit of the enterprise by changing the capital structure: shares of own and borrowed money... It should be noted that an increase in the share of borrowed capital (short-term and long-term liabilities) of an enterprise leads to a decrease in its financial independence. But at the same time, with an increase in the financial risk of an enterprise, the possibility of obtaining greater profits also increases.

Financial leverage. Economic meaning

The effect of financial leverage is explained by the fact that the attraction of additional funds makes it possible to increase the efficiency of the production and economic activities of the enterprise. After all, the attracted capital can be used to create new assets that will increase both the cash flow and the company's net profit. Additional cash flow leads to an increase in the value of the enterprise for investors and shareholders, which is one of the strategic objectives for the company's owners.

Financial leverage effect. Calculation formula

Financial leverage effect is the product of the differential (with tax corrector) by the lever arm. The figure below shows a diagram of the key links in the formation of the effect of financial leverage.

If we write down the three indicators included in the formula, then it will look like this:

T is the interest rate of income tax;

ROA is the return on assets of the enterprise;

r is the interest rate on the attracted (borrowed) capital;

D - borrowed capital of the enterprise;

E - equity capital of the enterprise.

So, let's take a closer look at each of the elements of the leverage effect.

Tax corrector

The tax adjuster shows how the change in the income tax rate affects the effect of financial leverage. Everybody pays income tax legal entities RF (LLC, OJSC, CJSC, etc.), and its rate may vary depending on the type of activity of the organization. So, for example, for small enterprises employed in the housing and communal sector, the final income tax rate will be 15.5%, while the unadjusted income tax rate is 20%. The minimum income tax rate by law cannot be lower than 13.5%.

Differential of financial leverage

Leverage differential (Dif) is the difference between the return on assets and the leverage rate. In order for the effect of financial leverage to be positive, it is necessary that profitability equity capital was higher than the interest on loans and borrowings. With negative financial leverage, the company begins to suffer losses, because it cannot provide production efficiency higher than the payment for borrowed capital.

Leverage Ratio (analogue: leverage) shows what proportion in general structure the capital of the enterprise borrowed funds (loans, loans and other liabilities), and determines the strength of the influence of borrowed capital on the effect of financial leverage.

Optimal leverage for leverage

Based on empirical data, the optimal leverage (the ratio of debt and equity) for the enterprise was calculated, which is in the range from 0.5 to 0.7. This suggests that the share of borrowed funds in the overall structure of the enterprise ranges from 50% to 70%. With an increase in the share of borrowed capital, the financial risks: the possibility of loss of financial independence, solvency and the risk of bankruptcy. When the amount of the borrowed capital is less than 50%, the company misses the opportunity to increase profits. Optimal size the effect of financial leverage is considered to be a value equal to 30-50% of the return on assets (ROA).

An example of calculating the effect of financial leverage for JSC RusHydro on the balance sheet

One of the formulas for calculating the effect of financial leverage is the excess of the return on equity ( ROA, Return on Assets) over the return on equity ( ROE, Return on Equity). Return on equity (ROA) shows the profitability of the enterprise using both equity and borrowed capital, while ROE reflects only the efficiency of equity. The calculation formula will look like this:

where:

DFL - financial leverage effect;

ROA is the return on equity (assets) of the enterprise;

ROE - return on equity

Let's calculate the effect of financial leverage for JSC RusHydro on the balance sheet. To do this, we will calculate the profitability coefficients, the formulas of which are presented below:

Calculation of the return on assets ratio (ROA) by balance

Calculation of the return on equity ratio (ROE) by balance

The balance sheet of JSC RusHydro was taken from the official website of the enterprise.

Report on financial results presented below:

Calculation of the effect of financial leverage for JSC RusHydro

Let us calculate each of the profitability ratios and estimate the effect of financial leverage for the enterprise JSC RusHydro for 2013.

ROA = 35321/816206 = 4.3%

ROE = 35321/624343 = 5.6%

Financial Leverage Effect (DFL)= ROE - ROA = 5.6 - 4.3 = 1.3%

The effect shows that the use of borrowed capital by JSC RusHydro made it possible to increase the profitability of its activities by 1.3%. The size of the effect of financial leverage on the return on equity is about ~ 30%, which is the optimal ratio and indicates the effective management of borrowed capital.

Summary

The effect of financial leverage shows the effectiveness of the use of borrowed capital by an enterprise to increase its efficiency and profitability. Increasing profitability allows you to reinvest funds in the development of production, technology, human resources and innovation potential. All this helps to increase the competitiveness of the enterprise. Illiterate management of borrowed capital can lead to a rapid increase in insolvency and the emergence of the risk of bankruptcy.

Business development is impossible without investment. As the latter, preference is given to borrowed money(loans, issue of securities). There are risks of loss of the company's solvency. A group of indicators helps to evaluate them, as well as to understand the effectiveness of the use of borrowed funds. financial sustainability enterprises, one of which is the financial leverage - the D / E ratio.

What is D / E Ratio?

Financial Leverage Indicator or D / E ratio(Debt-to-equity ratio) is the ratio of the company's debt to equity.

Borrowed means all short-term and long term duties companies:

Loans
Capital and time expenditures
Unpaid debts ( insurance premiums, unpaid salary, etc.)
Other types of compulsory financing at the expense of the enterprise.

For clarity, let's imagine that the amount of the company's liabilities is 400 thousand dollars, and the equity capital of 200 thousand D / E in this case is equal to two. For every dollar of the company's own funds, there are 2 dollars of borrowed money. The capital structure is 1: 2, respectively.

For a comfortable reading in reports, the D / E ratio is often displayed as a percentage. In the example above, the D / E ratio would be 200%.

The D / E ratio has several synonyms:

Financial leverage ratio (leverage);
Financial risk ratio;
credit leverage;
financial leverage.

The bottom line is that financial leverage determines the risk of an enterprise, which it assumes when choosing a capital structure.

Equity balance

Theory Modigliani-Miller (Modigliani - Miller theory, M&M theory) agrees that an increase in the capital of a firm by attracting borrowed funds has a positive effect on the development of the firm in the medium and long term. Using investments wisely, the money multiplier is set in motion. Its essence boils down to the fact that 1 nested unit will generate 2 units of profit.

In this case, 2 conditions must be met:

Affordable service price (weighted average price of capital, WACC)
The share of replacement funds in the capital structure does not exceed the standard value.

When borrowed funds in the capital structure grow faster than their own, the amount of debt service grows along with them, which can lead to a situation where the company not only does not justify its investments, but also fails to fulfill its internal and external obligations.

For an enterprise that attracts funds from outside, it is fundamentally important to establish equilibrium in the capital structure by defining the maximum permissible level of debt obligations in it.

Financial leverage effect

D / E ratios are industry-specific. The optimal level is considered to be 0.5 - 0.7, i.e. it is such a ratio of borrowed capital to equity, in which the maximum possible profit is achieved with minimal risks.

The D / E ratio shows the company's dependence on borrowed funds:

If D / E is above optimal level, which means the company is dependent on debt obligations, additional financing will be more difficult to obtain
Low D / E value speaks of the missed profit of the use of financial leverage. Any target commercial organization make the business profitable and profitable.

The essence of the leverage is to increase the return on equity by attracting borrowed funds.

Large companies can obtain additional financing by issuing securities. D / E will not be enough to assess its investment attractiveness. Comes to the rescue P / B ratio- a coefficient that shows the ratio of the market value of all shares to its book value. Simply put, the coefficient P / BV shows whether a stock is overvalued or undervalued:

> 1 are overvalued, demand for such stocks will be low
<1 недооценены, есть возможность получения прибыли за счет роста цены акций.

P / BV is one of the investment multipliers, you can rely on its value only in conjunction with other indicators of the financial stability of the enterprise.

Instead of a conclusion

Financial leverage in simple words is the ratio of liability (debt) to asset (equity). Most often, when calculating this indicator, only long-term debt obligations are used. (issue of bonds, loans and other).

The D / E ratio is often used by private investors to identify potential risks associated with the purchase of securities. The higher the value of the price / capital ratio, the greater the risk. Therefore, companies with a high D / E are forced to offer potential investors higher interest rates. As a rule, these enterprises are experiencing difficulties with the sale of their assets.

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Leverage is used both at the enterprise, to calculate the required amount of a loan secured by assets, and in exchange trading. This tool helps to increase profits by attracting external sources of funds. However, its inept use can lead to a deterioration in the economic situation and even lead to bankruptcy.

What is financial leverage

Leverage is the ratio of own assets to borrowed funds. In fact, it expresses the ability of the enterprise to pay the debt on time and in full. Banks and other lending institutions are required to calculate this parameter in order to determine the maximum amount of credit that they can give to the company. This definition is valid for both enterprises and individual investors who use this instrument while performing speculative transactions. Usually it is expressed as a share or percentage of the funds received in debt or temporary use. For enterprises and banks, some formulas for calculating financial leverage are used, for investors - others. When using this tool, it is important to assess not only the benefits of the application, but also the risk that it carries.

Purpose

Financial leverage is needed in order to increase the amount of working capital. Entrepreneurs use this financial tool to expand their economic activities. With the help of a loan, you can also solve other financial problems associated with the activities of the enterprise.

The calculation of the leverage of financial leverage is made by both banks and individual businessmen. It is necessary in order to correctly assess the possible risks associated with the use of leverage, as well as to determine the amount that a company or investor can count on.

Calculation formula

To calculate the leverage, the formula is as follows:

DFL = ((1-T) * (POA - p) * D) / E,

where DFL denotes the effect of financial leverage;

T is the percentage rate of the tax on profit adopted in the country;

ROA - the profitability of the assets of the enterprise;

p is the interest rate on the loan;

D - the amount of funds borrowed;

E - equity capital.

However, among managers and accountants, a different formula for calculating the leverage of financial leverage has become widespread. The data for the calculations are taken from the financial statements. It looks like this:

DFL = POE - ROA,

where POE is the return on equity. This parameter is calculated by the formula:

POE = Net profit / Total for section 3.

The return on assets of an enterprise is calculated using the formula:

POA = Net profit / Total balance.

This method is convenient because all calculations can be automated. In addition, in this way it is possible to assess only the effect of using the leverage of financial leverage, and not to calculate the amount required to expand or maintain the stable operation of the enterprise. This formula is used not for the analysis of past and current activities, but for forecasting.

Calculation example

To make the above formulas clearer, below are the calculations performed for the enterprise OJSC "Snezhka" on the basis of the data of its annual report.

POE = - 21055/480171 = - 0.044;

POA = -21055 / 1488480 = - 0.014;

DFL = - 0.044 + 0.014 = - 0.03;

How to interpret the information received? What does this result mean? If, when calculating, the ratio of the ratio of borrowed and own funds came out less than 0.8, then the state of the enterprise is considered not entirely stable. The company does not have a sufficient number of current assets that it can sell to pay off short-term loans. If it is more than 0.8 or equal to it, it means that the risk is insignificant and the company does not threaten anything, since it will be able to sell its assets in a timely manner and make a payment if required.

As can be seen from the calculations, Snezhka OJSC is not only unable to pay off its current debts, but it also has no right to expect to receive a new loan from the bank to expand its activities. Here at least pay off the arisen debts. This situation has been observed at many Russian enterprises, especially over the past 2-3 years. However, this is not a reason for the bank to take risks once again. To determine whether financial leverage will help to rectify the situation, the calculations must be carried out not in one year, but in 3-5 years of the enterprise's operation.

What do the data obtained during the calculations mean?

The coefficient of the ratio of borrowed and own funds was obtained. But the calculations are only half the battle. The information received must still be able to analyze. The degree of risk depends on how correct the analysis and the decision made. For a bank - the return of loans issued, for a businessman - the stable operation of the enterprise and the likelihood of bankruptcy.

As you can see from the above example, the enterprise has serious problems. In the current period, it received a net loss. The organization can take a loan from the bank to cover the debt incurred in connection with the loss received. But this threatens with the loss of stability and the risk of delay in payments on loans, which, in turn, will lead to the emergence of unforeseen expenses in the form of payment of penalties and fines.

If the entrepreneur knows in advance the amount of the loan that he can count on, he can better plan where and on what he can spend these funds. This is precisely the benefit of such calculations.

Using financial leverage on the stock and foreign exchange markets

The most widespread use of leverage is acquired in trading operations on the stock and foreign exchange markets. By attracting borrowed funds, an investor can acquire more, which means that he can get a higher profit. But the use of leverage in such risky transactions often leads to large losses in a short time.

When calculating leverage for investors conducting speculative transactions on the exchange, the formula is not used. In this case, the leverage is the ratio between the amount of capital and the loan provided for temporary use. The ratio can be as follows: 1:10, 1:50, etc. The larger the ratio, the higher the risk. The deposit amount is multiplied by the amount of the leverage. Since fluctuations on the stock exchange are usually only a few percent, leverage allows you to increase the amount of money used by tens and hundreds of times, which makes the profit (loss) significant.

Entrepreneurship is a specific economic function of a firm, carried out by one or more people (an entrepreneurial team), which consists in finding and implementing new market opportunities to create competitive advantages and increase the value of the business. To create new value, you need: initiative, responsibility, combination of factors of production (resource management), innovation, risk.

Financial indicators of the enterprise and the method of their calculation

The main characteristics of the company's liquidity and solvency are: the value of its own working capital (SOS); ratios of the current (Ob.s / KP. (short-term liabilities)), fast ((DZ + DS + Kr.fin.vl.) / KP.) and absolute liquidity((DS + Kr.fin.vl.) / K.P.), Which indicate whether the company is able to pay off its current obligations.

The financial stability of the enterprise is characterized by the following coefficients: autonomy coefficient (Equity capital (IC) / Balance currency (WB)); the maneuverability coefficient (SOS / SK) and the structure of long-term financial investments (Long-term liabilities / Non-current assets), which indicate the extent to which the enterprise is independent of external sources of financing.

The main indicators of business activity are: ratios of turnover of current assets (Revenue (BP) / average amount of ob.s.) inventories (cost price / avg. Amount of inventories); accounts receivable (BP / avg. DZ amount); return on assets (BP / cf. the amount of fixed assets) and other indicators of turnover, which indicate how quickly the funds turnover at the enterprise.

The profitability of the financial and economic activity of the company is characterized by the coefficients of profitability of sales (Profit (Ex) / BP); return on assets (Ex / avg. amount of assets); costs (Ex / (cost + commercial + administrative costs)); profitability of own (PR. / avg. amount of SK) and borrowed capital (Pr. / av. amount of ZK), which testify to the efficiency (profitability) of the enterprise.

Entrepreneurial risks and their classification.

Entrepreneurial risk- any event, the probability of which can be estimated as a result of which the company's forecast cash flows could differ from the expected ones. Revenues, adjusted for risk, must at least exceed cost capital required to cover risks. One of the modern classifications of risks is as follows. Market risk - associated with changes in market prices, interest rates, exchange rates, the value of securities, etc. Credit risk - caused by the default by a debtor or borrower . Operational risk- associated with the inadequacy of internal processes and systems, or external events (including with the opportunistic behavior of agents). Business volume risk- arises from changes in the dynamics of supply / demand and competition and represents the dependence of the financial condition of the company on their fluctuations.

Effective risk management requires a clear system for collecting and processing information about risks. A visual form is a signal map, which shows the risks (broken down by categories and amounts) specific to each business unit, and displays the overall rate of return to risk.

Basic concepts of financial management.

Basic concepts finance theories are as follows. Ideal markets concept is based on general principles of how people and firms should behave. Within the framework of the concept, an ideal market is modeled, thus, market processes and phenomena are simplified and formalized. Simplifications of the concept include assumptions about the absence of transaction costs, taxes, costs of information support and costs associated with financial difficulties. It is also assumed that there are a large number of market participants, so that no single participant can individually have a significant impact on market prices, etc. The analysis of discounted cash flows is based on the time value of money.

Capital structure theory explained by models Modigliani-Miller, the Miller model and the compromise model. Modigliani and Miller argue that in an ideal market, the value of a firm is determined by its future earnings and does not depend on the capital structure. As a result of the refinement of the model by including financial difficulties in the model of taxes and costs, the Modigliani-Miller theory made it possible to draw the following conclusions: the presence of a certain share of borrowed capital is beneficial to the firm, a high share of borrowed capital is harmful to the firm due to a sharp increase in the cost of financial difficulties, for each firm there is an optimal the capital structure at which the price of capital is minimal, the value of the company is maximized. According to the trade-off model, the marginal costs and benefits of debt financing must balance each other, and the optimal capital structure will be somewhere between zero and 100% debt financing.

There are three dividend theory: Modigliani-Miller, Gordon and Lintner, Litzenberger and Ramaswamy. The Modigliani-Miller theory assumes that in an ideal market and assuming that the dividend payment policy does not rationally affect investment policy and investor behavior, it argues that the dividend payment policy does not affect the value of the firm. The tit-in-hand theory (by Gordon and Lintner) states that firm value will be maximized with a high dividend payout ratio. Tax preference theory (Litzenberger and Ramaswamy) argues that since long-term capital gains are subject to less burdensome taxes than dividends, investors prefer the company to keep earnings as retained earnings rather than pay dividends.

Markowitz portfolio theory states that in order to minimize risk, investors should combine risky assets into portfolios due to the lack of a direct functional relationship between the values of the returns of various financial assets. The level of risk for each individual type of asset should be measured not in isolation from other assets, but in terms of its impact on the overall level of risk of a diversified portfolio. Markowitz's theory teaches how to measure risk, but does not define the relationship between risk and return. To solve this problem, a financial asset profitability assessment model (CAPM) is used. According to this model, the required return on risky assets is a function of three variables: the risk-free return, the average market return on the stock market, and the index of the volatility of the return on this financial asset in relation to the return on the market as a whole.

Besides, there is a theory of the time value of monetary resources (the ruble today has a greater value than the ruble in the future), the theory of option pricing, which is based on Black-Scholes model, the theory of market efficiency, the concept of a compromise between risk and return (the greater the risk, the greater the return, and vice versa), the theory of agency relations (explains conflicts of interest between: shareholders and managers; shareholders and creditors) and the theory of asymmetric information (based on different awareness of the state and prospects of the firm between its managers and investors).

All of the above concepts financial management determine the essence and directions of development of the main phenomena and processes in financial management. At the same time V.V. Kovalev believes that there are a number of basic concepts of financial management: cost of capital(its meaning is that servicing one or another source of capital does not cost the company the same), opportunity costs(its meaning is that the adoption of any decision in most cases is associated with the rejection of some alternative option) and temporary unrestricted functioning of an economic entity(when the organization is created, it is assumed that it will function forever).

Financial leverage (financial leverage) characterizes the ratio between equity and equity capital of a company.

Financial leverage = (ZK + SK) / SK = PFR + 1 = ZK / SK +1;

where PFR is the leverage of the financial leverage; ЗК - borrowed capital; CC - equity.

The existing level in the company financial leverage reflects the potential to influence financial results by changing the volume and structure of long-term liabilities. At the same time, the level of financial leverage directly affects the degree of financial risk of the company. A company with a significant share of borrowed capital is called a company with a high level of financial leverage, or a financially dependent company, a company that finances its activities only from its own funds is called financially independent.

There are two concepts of financial leverage - American and European.

1. American concept of financial leverage.

Within this concept the influence of financial leverage is identified by assessing the relationship between net profit and the amount of profit before interest and taxes (PDPN - profit before interest and taxes). Financial leverage reflects the measure of the financial risk of an enterprise's activities, since a firm using borrowed funds always risks more than a firm that does not use borrowed capital. Each percent change in pre-interest and tax (PIR) earnings results in a larger change in net income. That is, the higher the impact of financial leverage, the greater the degree of financial risk of the enterprise associated with the use of borrowed funds (there may be a lack of funds to pay interest on loans and borrowings).

The degree of influence of financial leverage for this concept is determined by the formula:

The DFL ratio shows how many times profit before interest and taxes outweighs taxable profit. The lower limit of the coefficient is one. The greater the relative volume of borrowed funds attracted by the enterprise, the greater the amount of interest paid on them, the higher the level of financial leverage and, therefore, the more variable is the net profit.

2. European concept of financial leverage.

Within the framework of this concept, financial leverage characterizes the efficiency of the use of borrowed capital. Leverage is calculated as the difference between the return on equity and the return on assets. This is an indicator that reflects the level of additional return on equity due to the use of borrowed funds.

The financial leverage effect (EFI) is calculated using the following formula:

Thus, the effect of financial leverage is an increase in the return on equity, obtained through the use of borrowed funds. If the effect of financial leverage takes a negative value, it can be concluded that the inefficient use of borrowed capital, which leads to a decrease in the return on equity.

There are three main components in the formula for the effect of financial leverage:

1) tax corrector (1 - SNP);

2) differential financial leverage (Kra - PC);

3) leverage of financial leverage (ZK / SK).

Tax corrector- reduces the effect of financial leverage depending on the level of taxation of profits. The company practically cannot influence this indicator, since the income tax rates are established by law. However, firms can be registered in free economic zones or states with lower taxation levels.

Financial leverage differential - is the main element in the formation of a positive effect. This effect manifests itself if the level of return on assets exceeds the average rate of interest for the use of borrowed funds - (Kra> PC).

Leverage of financial leverage - characterizes the strength of the impact of a positive or negative effect obtained due to the differential.

Even the ancient Greek scientist Archimedes paid attention to the enormous potentialities of the use of a lever. Remember his famous phrase in which he said that if he had a fulcrum, he could move the Earth? Nowadays, the lever is often used in practice in order to increase the force of impact on the short arm, while applying force to the long arm. In mechanics, the payoff obtained directly depends on the ratio of the length of the arms. But this principle can also be used in other areas, for example, in economics. Let's take a look at what leverage is and what business opportunities it holds.

In different publications, different synonyms for this term are often found. Financial leverage is often referred to as leverage, leverage, or financial leverage. In fact, it is the ratio of borrowed funds raised in an investment project to the amount of equity capital. To better understand what constitutes leverage, let's look at a simple example. Suppose we are analyzing the possibility of investing our funds in a certain business project. The planned profitability is at the level of 30% per year, and the investment period is 12 months. The amount of equity capital, which we are ready to direct to this project at the moment, is 120 thousand rubles. It is easy to calculate that at the end of the first year of operation, our investments will bring an income of 36 thousand rubles. In order to get more from investments more income, you need to increase the amount start-up capital... It is not easy to do this yourself, since available funds are limited at this time.

However, if the expected profitability exceeds the average loan rate, then additional income can be obtained through a bank loan. So, reluctantly, we decide to direct the borrowed capital to the project in the amount of 120 thousand rubles. Suppose we managed to get a bank loan at 22% per annum. If everything goes according to our forecasts, the profit from the use of equity capital will bring us, as already mentioned, 36 thousand rubles, and with the attraction of loan capital, its amount will be 72 thousand rubles. We will pay interest to the bank from them (26.4 thousand rubles), and we will have 45.6 thousand rubles. As you can see, leverage is a good opportunity to improve business profitability. In our case, he allowed us to receive an additional 9.6 thousand rubles.

What will give you financial leverage. Calculation formula

The use of borrowed funds is not always beneficial. In order to make the right decision and assess what effect the use of financial leverage will bring, you can apply the following formula:

RFR = (1 - Np) × (Ra - CK) × ZK / SK, where

RFR - the result of using financial leverage,%;

Нп - decimal expression of the income tax rate;

RA - return on assets,%;

CK - the size of the average (weighted average) lending rate,%;

ЗК - borrowed capital;

SK - equity capital.

As you can see, three factors are involved in calculating the effect size. The first of them - (1 - Нп) - does not depend on the firm in any way. (Ra - Ck) shows how much the return on assets exceeds the interest rate on the loan. It has its own name - differential. (ZK / SK) - this, in fact, is the financial leverage.