The solvency of an enterprise is understood as its ability to pay off long-term obligations. This definition confirmed by the composition of the solvency ratios, which are based on the ratio of items of long-term assets to each other and to the total of liabilities. Since items of long-term liabilities represent their own and borrowed capital, the ratios of this group may also be called “capital structure ratios”. Unfortunately, in Russian practice, the concept of enterprises' solvency is mistakenly identified with the concept of their liquidity. Solvency indicators characterize the degree of protection of creditors and investors with long-term investments in enterprises from the risk of non-return of their invested funds.

The group of solvency ratios (or capital structure) includes the following ratios:

1) the coefficient of ownership;

2) coefficient borrowed money;

3) the coefficient of dependence;

4) interest coverage ratio.

1. Coefficient equity capital:

K = Equity / Balance Totals x 100%

The equity capital ratio characterizes the share of equity in the sources of financing of the enterprise. It also reflects the balance of interests between investors and lenders. A high proportion of own funds in the structure of long-term liabilities, all other things being equal, ensures a stable financial position of the enterprise. Valid values: Western financial management it is considered that the value of this coefficient must be maintained at a level exceeding 50%.

2. The debt capital ratio:

K = Debt capital / Balance totals x 100%

The borrowed capital ratio reflects the share of borrowed capital in the sources of financing of the enterprise. This coefficient, in terms of its value, is the reciprocal of the property coefficient. Acceptable Values: Western financial authorities believe that the value of this ratio should be kept below 50%.

3. Dependency ratio:

K = Equity / Equity x 100%

Acceptable Values: Western financial authorities believe that a high ratio is undesirable. This ratio characterizes the firm's dependence on external loans. The higher the value of the indicator, the more long-term liabilities at of this enterprise, the more risky its position is. Large external debt, including interest payments, means the potential danger of a shortage of funds, which, in turn, can lead to bankruptcy of the enterprise.

4. Interest coverage ratio:

K = Profit before interest and taxes / Interest expense (times)

Interest coverage ratio characterizes the degree of protection of creditors from the risk of non-payment of interest on placed loans. The coefficient shows how many times during the reporting period the company earned funds to pay interest on loans. This indicator also reflects the acceptable level of reduction in the share of profits aimed at paying interest. Allowed Values: The higher the coefficient value, the better.

graduate work

2.3 Assessment of indicators characterizing the capital structure of the enterprise

Further, to assess the feasibility of the capital structure, the indicators of the capital structure presented in Table 2.3.1 were analyzed. Capital structure indicators of LLC "Almetyevskoe UTT-1" reflect the ratio of equity and borrowed funds in the company's sources of financing.

Table 2.3.1.

Analysis of indicators of the capital structure of LLC "Almetyevskoe UTT-1" for 2008-2010.

Index	Absolute value	Growth rate,%
Financial independence ratio
The ratio of total liabilities to total assets
Long-term liabilities to assets ratio
The ratio of total liabilities to equity
The ratio of long-term liability to non-current assets

From table 2.3.2. it can be seen that the financial independence ratio shows a slight upward trend of 11.05% for 2008-2010, which indicates a decrease in the degree of dependence of LLC Almetyevskoe UTT-1 on external loans. Absolute value this indicator relatively significant, which indicates the presence of a risk of insolvency.

The indicator of the ratio of total liabilities to total assets shows a decrease of 6.43%, which indicates a decrease in the share of the company's assets, which is financed through loans. However, during the study period, the value of this indicator does not correspond to the recommended value (0.2 - 0.5), that is, LLC Almetyevskoe UTT-1 fully uses the opportunity to use borrowed funds and even exposes its activities to risk.

The ratio of long-term liabilities to assets demonstrates a decrease by 92.05%, which indicates a decrease in the share of assets financed by long-term loans. However, the absolute value of this indicator is negligible: assets are practically not financed through long-term loans.

The ratio of total liabilities to equity shows a decrease of 15.74%. The absolute value of this indicator does not correspond to the recommended value (0.25 - 1), which again indicates the excessive use of the potential of loans in the capital structure.

Consider the return on equity of LLC "Almetyevskoe UTT-1" for 2008-2010 using table 2.3.2.

Table 2.3.2.

Analysis of the return on equity of LLC "Almetyevskoe UTT-1" for 2008-2010.

Index	Absolute value	Growth rate,%
Balance sheet profit, thousand rubles
Profit taxes, thousand rubles
Profit after taxes, thousand rubles
Share of net profit in the total amount of balance sheet profit
Revenue, thousand rubles
Capital amount, thousand rubles
including equity capital, thousand rubles
Return on sales before taxes,%
Capital turnover ratio, vol
Capital multiplier, units
Return on equity after taxes,%

The data in Table 2.3.2 allow us to conclude that the return on equity after taxes is declining, which indicates a poor quality composition of capital in terms of profitability. The dynamics of return on equity occurs at an uneven pace throughout the entire period: in 2009 it decreases by 7.4%, and in 2010 it increases by 7.4%. The decrease in 2008-2010 is due to the fact that the growth rate of equity capital is higher than the growth rate of net profit. The low-quality composition of capital in terms of profitability is confirmed by the fact that the decrease in the return on equity after taxes is observed against the background of an increase in net profit by 4.8%

Consider the quality level of the borrowed capital of LLC "Almetyevskoe UTT-1" for 2008-2010 using the effect financial leverage and Table 2.3.3.

Table 2.3.3.

Analysis of the efficiency of the borrowed capital of LLC "Almetyevskoe UTT-1" for 2008-2010.

Index	Absolute value	Growth rate,%
Balance sheet profit, thousand rubles
Profit taxes, thousand rubles
Taxation level, coefficient
Average annual amount of assets, thousand rubles
Equity
Borrowed capital
Leverage of financial leverage (the ratio of debt to equity)
Return on total capital,%
Weighted average price of borrowed resources,%
Financial leverage effect,%

From the data in table 2.3.3 it can be seen that the effect of financial leverage shows an upward trend from 81.90% to 93.64%. The growth rate was thus 14.3%. This positive dynamics indicates that the use of borrowed capital for 2009-2010 has a positive effect.

The reason for the positive value of the financial leverage differential is the introduction of new resource-saving transportation technologies, as a result of which the return on total capital increased by 3.9%. Under these conditions, a positive value of the differential of financial leverage was also formed with a decrease in rates on borrowed capital due to the transition to accounts payable as the main source of borrowed funds.

As a result, the financial leverage ratio shows an increase, as noted above, which is a favorable trend and will lead to an even greater rate of increase in the return on equity ratio.

In conclusion, let us estimate how much the capital structure allows to comply with the conditions of solvency and liquidity of the activities of LLC "Almetyevskoe UTT-1".

When comparing groups of assets and liabilities, certain ratios must be observed, indicating the liquidity of the balance sheet of Almetyevskoe UTT-1 LLC and, accordingly, its activities.

Table 2.2.4.

Analysis of the balance sheet liquidity of LLC "Almetyevskoe UTT-1" for 2008-2010, units.

Index	Indicator values, units
Most liquid assets А 1
Quickly realizable assets А 2
Slowly realizable assets А 3
Hard-to-sell assets А 4
Most urgent commitments P 1
Short-term liabilities P 2
Long-term liabilities P 3
Permanent liabilities or stable P 4
Compliance with the A1 ratio? P1
Compliance with the A2 ratio? P2
Compliance with the A3 ratio? P3
Compliance with the A4 ratio? P4

Table 2.2.4. shows a tendency of good liquidity of the balance sheet of LLC "Almetyevskoe UTT-1" for 2008-2010, with the exception of the end of the study period. In 2010, there is a shortage of funds only to cover the debt for a period of up to 3 months as a result of a significant share of accounts payable.

Thus, the capital structure of LLC Almetyevskoe UTT-1 is such that there is a decrease in dependence on external loans. However, during the study period, LLC "Almetyevskoe UTT-1" excessively realizes the opportunity to use borrowed funds. Assets are mostly financed through loans. The assessment of the quality of the capital structure of the enterprise LLC "Almetyevskoe UTT-1" allows us to draw the following conclusion. The poor quality composition of capital in terms of profitability is confirmed by the fact that a decrease in the return on equity after taxes is observed against the background of an increase in the company's net profit. The effect of financial leverage shows an upward trend, which indicates a positive effect of the use of borrowed funds. However, the reverse side of this efficiency is a decrease in the liquidity of the activities of LLC Almetyevskoe UTT-1.

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To determine the degree possible risk bankruptcy in connection with the use of borrowed funds use capital structure indicators(financial stability). They reflect the ratio of equity and borrowed funds in the company's sources of financing, characterize the degree of financial independence of enterprises from creditors.

Autonomy ratio (concentration of equity capital)

The coefficient shows the share of own funds in the total amount of funding sources:

Ka = equity / total assets

This indicator determines the share of "other people's money" in the total amount of claims against the company's assets. The higher this ratio, the greater the likely risk for the lender. It represents the primary and broadest assessment that can be made in an effort to assess a lender's risk.

This value of the equity capital concentration ratio suggests that all liabilities can be covered by its own funds. An increase in this indicator reveals to a greater extent independence from financial investments of third parties. At the same time, a decrease in this ratio signals a weakening of financial stability. Therefore, the higher this coefficient, the more reliable the financial position of the enterprise looks for banks and creditors.

Debt Raising Ratio

This ratio shows the share of borrowed funds in the total amount of funding sources.

The coefficient characterizes the degree of the company's dependence on borrowed funds. It shows how much borrowed funds account for one ruble of own assets.

Kpz = borrowed capital / total assets

Accordingly, the value of this indicator should be less than 0.5. The higher this ratio, the more loans the company has and the more risky the situation, which can ultimately lead to the insolvency of the company.

Coverage ratio of non-current assets

Кпв = (equity + long-term loans) / non-current assets

The excess of permanent capital over non-current assets indicates the solvency of the enterprise in the long term. The financial position of the enterprise can be considered stable if the value of the coefficient is not less than 1.1. The value of this coefficient below 0.8 indicates a deep financial crisis.

Interest coverage ratio (creditors protection)

It characterizes the degree of protection of creditors from non-payment of interest and shows how many times during the year the company earned funds to pay interest on loans.

KPP = earnings before interest and taxes (accounting profit) / interest payable

If the ratio is higher than 1.0, it means that the company has enough profit to pay interest on loans, i.e. lenders are protected.

Coverage ratio of assets with own circulating assets

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Kpa = own circulating assets / amount of assets

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The capital price of an economic entity largely depends on its structure.
The capital structure of an enterprise (Fig. 55) is the ratio between various sources of capital (equity and debt capital) used to finance its activities. Sometimes short-term borrowings are excluded from capital, that is, they determine the capital structure as a set of sources used for long-term financing of the investment activities of an enterprise. At the same time, if short-term borrowings are carried out on an ongoing basis (which is what happens in most cases), in our opinion, they should be included in the composition of capital when analyzing the structure of financing.

Rice. 55. Basic definition enterprise capital structure
The optimal capital structure is the combination of debt and equity that maximizes the total value of the firm.
If we approach the question of determining the optimal capital structure from the position of the relative cost of funding sources, then it must be borne in mind that debentures cheaper than stocks. This means that the price of borrowed capital is on average lower than the price of equity. It follows that replacing shares with cheaper borrowed capital reduces the weighted average cost of capital, which leads to an increase in efficiency. entrepreneurial activity and, consequently, the maximization of the price of the enterprise. Therefore, a number of theories financial management is based on the conclusion that the optimal capital structure involves the use of borrowed capital in the maximum possible amount.
But in practice, one should proceed from the fact that replacing shares with cheaper borrowed capital reduces the value of the firm, which is determined by the market value of the firm's equity capital.
In addition, the rise in debt increases the risk of bankruptcy, which can significantly affect the price that potential investors agree to pay for the common stock of this firm.
There are also important non-financial costs associated with the use of borrowed capital as a result of restricting managerial discretion in loan agreements. These can be obligations to create additional reserve funds to pay off debt or restrictive conditions for declaring dividends, which undoubtedly reduces the value of the business.
Therefore, it is impossible to develop a formula for determining the optimal capital structure for a particular enterprise. A manager, determining how close the capital structure of a firm is to the optimal one, must to some extent rely on intuition, which in turn is based on information that takes into account both intra-firm and macroeconomic factors.
In addition, attracting financial resources from various sources has organizational, legal, macroeconomic and investment restrictions.
Limitations of an organizational and legal nature include legally enshrined requirements for the amount and procedure for the formation of individual elements of equity and debt capital, as well as control over the management of the company by the owners.
The macroeconomic constraints include the investment climate in the country, country risk, the government's emission and credit policy, the current tax system, the Central Bank's refinancing rate, and the inflation rate.
The amount of financial resources that a company can attract from various sources and the period for which they can be involved in business turnover depends both on the development of the financial and credit markets and on the availability of these funds for a particular company. One of the important restrictions on the formation of the financial structure of capital is the correspondence of the scope and nature of the enterprise's activities to the investment preferences of shareholders and / or the degree of trust in the enterprise on the part of creditors.
Thus, no theory can provide an integrated approach to solving the problem of the optimal capital structure of an enterprise. Therefore, in practice, the formation of an economically rational capital structure is carried out on the basis of one of the following principles:
1. The principle of maximizing the level of predicted return on equity.
2. The principle of minimizing the cost of capital.
3. The principle of minimizing the level of financial risks.
Together, there is whole line financial instruments with the help of which it is possible to improve the efficiency of management of the financial structure of the enterprise's capital. Among them is the use of financial ratios, with the help of which it is possible to assess the impact of the process of changing the financial structure of capital on the financial position of the enterprise and the degree of protection of the interests of creditors and investors. We are talking about indicators that characterize the financial stability of the enterprise and the efficiency of investments in it (Fig. 56).

Rice. 56. The concept of financial stability of an economic entity
and the formula for calculating the financial stability ratio
Achieving the financial stability of an enterprise, along with an increase in profits and limiting risk, requires the enterprise to retain both solvency, or liquidity ( financial sense this concept was discussed in detail in the topic 6), and creditworthiness, which is by no means synonymous with the concept of "solvency".
The creditworthiness of an enterprise is understood as the presence of the prerequisites for obtaining a loan and its return on time. The borrower's creditworthiness is characterized by his diligence in settlements on previously received loans, the current financial condition and the ability, if necessary, to mobilize cash from various sources.
The financial stability ratio characterizes the ratio of own and borrowed sources of financing. If this indicator is higher than one (there is an excess of own funds over borrowed funds), this means that the company has a sufficient margin of financial stability.
The coefficient of financial dependence (Fig. 57) characterizes the dependence of the company on external loans and shows what share of the company's property was acquired through borrowed funds. The higher this ratio, the more risky the situation. in financial sustainability and the greater the likelihood of a cash deficit.

Rice. 57. Formulas for calculating the ratios of financial dependence, self-sufficiency and self-financing
The equity ratio characterizes the company's ability to meet the need for financing working capital only at the expense of own sources... The financial condition of the enterprise is considered satisfactory if this indicator is equal to or exceeds 0.1.
The self-financing ratio shows how much of the investment can be covered by the internal sources of the enterprise - retained earnings and accrued depreciation. A number of authors consider the amount of retained earnings and amortization as net cash flow, or cash flow from economic activity enterprises. Then the self-financing ratio is called the "indicator of monetary return on investment." The higher this indicator, the higher the level of self-financing of the enterprise, therefore, the higher the financial stability.
The autonomy ratio (concentration of equity capital) characterizes the share of equity capital in the financial structure of capital (Fig. 58). For greater financial stability, it is desirable that it be at the level of 0.5-0.6.

Rice. 58. The formula for calculating the equity ratio (concentration of equity capital)
A number of authors attribute the autonomy ratio to the liquidity indicators, which seems to us quite logical, since the enterprise must first of all pay for its obligations from its own sources. At the same time, this indicator is also an important coefficient in assessing the financial structure of an enterprise.
To ensure complete financial stability, the management of the enterprise, along with ensuring sufficient solvency and creditworthiness, must also maintain high liquidity of the balance sheet, and for this, the financial structure of capital must be formed taking into account the following requirements:

Accounts payable should not exceed the value of the most liquid assets of the enterprise (these include, first of all, cash and short-term securities);

Short-term loans and borrowings and that part of long-term loans, the maturity of which falls on a given period, should not exceed the amount of quickly realizable assets (accounts receivable, funds on deposits);

Long-term loans and borrowings should not exceed the amount of slowly sold current assets(reserves finished products, raw materials and supplies);

Own funds must be higher than the value of the non-current assets of the enterprise.

Considering the financial structure of an enterprise's capital, it is necessary to analyze its ability to service constant payments - interest on borrowed capital and dividends to owners share capital... For such an assessment are indicators of market activity, or investment efficiency.
Interest coverage ratio (Fig. 59) characterizes the degree of protection of creditors from non-payment of interest on a loan. While there is no exact rule of thumb as to the optimal value of interest and dividend coverage ratios, most analysts agree that minimum value this coefficient should be equal to 3. A decrease in this indicator indicates an increase in financial risk.

Rice. 59. The formula for calculating the interest coverage rate
Using the dividend coverage ratio on preferred shares (Fig. 60), it is possible to assess the company's ability to service dividend arrears to the owners of preferred shares. In this case, the calculator of the formula is the amount of net profit, since dividends are paid only from the amount of profit after tax. Obviously, the closer this figure is to one, the worse the financial position of the company.

Rice. 60. The formula for calculating the indicator of coverage of dividends on preferred shares
Income per common share (Fig. 61) is the main indicator of the company's market activity. It characterizes the ability of a stock to generate income. It is determined by the ratio of net profit, reduced by the amount of dividends on preferred shares, to the number of ordinary shares of the company.
The dividend coverage ratio (Fig. 62) estimates the amount of profit that can be used to pay declared dividends on ordinary shares. The inverse of this ratio is the dividend payout ratio, which is equal to the ratio of the amount of accrued dividend to earnings per ordinary share and shows how much of the company's net profit is used to pay dividends.
The income capitalization rate (Figure 63) reflects the return on invested capital and the cost of equity for ordinary shares. The financial essence of this indicator is that it can be considered as the rate at which the market capitalizes the amount of current income.

Rice. 61. The formula for calculating earnings per ordinary share

Rice. 62. The formula for calculating the coverage ratio of dividends on ordinary shares When evaluating the financial structure of a company's capital, it should be borne in mind that there are no ideal coefficients that can reflect the whole variety of economic activities of an enterprise, just as there are no unconditional indicators to strive for at any circumstances.
So, above we considered that a high share of equity capital is required for the financial stability of an enterprise. At the same time, if a company uses borrowed funds to a non-sufficient degree and is limited to the use of equity capital, this is fraught with a slowdown in development, a drop in competitiveness, physical and moral obsolescence of equipment, and inadequacy of the characteristics of finished products to market requirements. All this leads to a decrease in gross profit, and hence, and earnings per share, a decrease in the market value of shares and, as a consequence, a decrease in the market value of the company. At the same time, the extremely high share of borrowed funds in liabilities indicates an increased risk of bankruptcy. In addition, owners of credit funds can establish control over a firm with limited self-financing capabilities.

Rice. 63. The formula for calculating the income capitalization interest rate
Often, financial ratios just a hint of what is happening at the enterprise, what changes and trends are, how they affect business development. Financial performance helps answer critical questions related to current and strategic activities enterprises such as:
-What is more important at this stage of the enterprise's activity - high profitability or high liquidity?
-What is the optimal amount of a short-term loan required by the company?
-What part of the profit to distribute as dividends?
-Conduct a new issue of shares or raise debt capital? etc.
Ultimately, when making any decision related to the management of the financial structure of capital, one should keep in mind one of the main goals of financial management - to maximize the company's profit.
You can influence the profitability of an enterprise by changing the volume and structure of liabilities.
Consider, for example, the performance indicators of four firms, which are the same in everything except the size and cost of borrowed capital.
So, Anne's firm uses borrowed capital, B's firm has a loan at 8%, firm C - at 12%, and D - at 16%. The return on investment (return on invested capital) for each firm is 12%. The par value of the shares is 10 rubles, the income tax is 20%.

Despite the fact that all firms have the same volume and return on investment, Firm B will provide its shareholders with a higher return on shares than Firm A, which does not use debt capital at all. Income on shares firms Ai C, despite the different capital structure, is the same. Least income the shares will be received by the shareholders of firm D. The result is due to two reasons:
1) since interest on a loan is deducted from income, usually before taxes are levied, debt financing reduces taxable profit and leaves a large amount of income at the disposal of the company's shareholders;
2) the company can, with the efficient use of borrowed capital, have additional income, which, after paying interest to investors, can be distributed among the shareholders.
For this, the value of the return on invested capital (DI) must be higher than the interest that the company pays for the use of borrowed capital.
Thus, firm B, paying for a loan at 8%, ensures the profitability of its use at 12%, which increases the profitability of its shares in comparison with firm A. In this case, we are talking about the positive effect of financial leverage (Fig. 64). Ufirms The severity of DNI coincides with the debt capital scene, so earnings per share are equal to earnings per share of firm A. The effect of financial leverage is zero. Firm D, paying a loan at 16% and having a DI of 12%, is exposed to negative leverage.

Rice. 64. The concept of financial leverage
From the formula for calculating the level of the leverage effect (Fig. 65), it can be seen that the positive, negative or zero value of the leverage effect depends on the difference between the economic profitability of assets (ER) and the average calculated interest rate (AMR) (the so-called leverage differential). If ER> SRSP, then both the differential and the effect of financial leverage are positive; if ER< СРСП - отрицательный; если ЭР = СРСП - нулевой.
The level of the effect of financial leverage also depends on the ratio of borrowed and own funds of the enterprise (the so-called leverage). If the amount of borrowed funds is higher than the amount of equity capital, the impact of financial leverage increases, if it is lower, it falls.
Affects the level of the effect of financial leverage and the rate of taxation of profit, and the lower it is, the greater the impact of the effect of financial leverage.
When determining the optimal amount of borrowed capital that can be attracted by an enterprise to finance its economic activities, it is necessary to take into account that not only profitability, but also financial risk depends on the capital structure.
In this case, financial risk is considered as a deviation of the actual result from the planned one.

Rice. 65. The formula for calculating the level of the effect of financial leverage
An illustration of the influence of borrowed capital on the risk and profitability of entrepreneurial activity can be the following example. Firms Ai V have the same assets (100 thousand rubles), sales volume (100 thousand rubles) and operating expenses (70 thousand rubles). Only the structure of the capital is different - the company is financed only from its own capital (100 thousand rubles), firm B- at the expense of its own (50 thousand rubles) and borrowed (50 thousand rubles. At 15%) capital.

Thus, under normal conditions, Firm B would provide its shareholders with a return on shares equal to one and a half times the return on Firm A. exposed to financial leverage will fall especially sharply, losses will occur. Firm A, due to a more stable balance, will be able to more easily withstand the decline in production.
It follows that firms with a lower share of debt are less risky, but they are deprived of the opportunity to use the positive effect of financial leverage to increase the return on equity. Firms with relatively high leverage may have higher returns on equity if economic conditions are favorable, but they are exposed to the risk of losses if they find themselves in a downturn or if the financial calculations of the firm's managers are not justified. It should be borne in mind that if only a small part of the investments is made by the owners, then the risks of the enterprise are borne mainly by the creditors.
Summarizing the above, we note that in the video, the structure of the enterprise's capital should provide the most effective ratio between the indicators of profitability and financial stability. To solve this one of the most difficult tasks of financial management, the process of optimizing the capital structure of an economic entity should include several stages:
1. Capital analysis with the aim of identifying trends in the dynamics of the volume and composition of capital and their impact on the efficiency of the use of funds and the financial stability of the company.
2. Assessment of the main factors affecting the capital structure.
3. Optimization of the capital structure according to the criterion of maximizing the return on equity capital by simultaneously assessing the size of financial risk and the effect of financial leverage.
4. Optimization of the capital structure according to the criterion of minimizing its cost, for which the price of each element of capital is determined and its weighted average cost is calculated based on multivariate calculations.
5. Differentiation of funding sources by the criterion of minimizing the level of financial risks.
6. Formation of the target capital structure, which is the most profitable and the least risky.
After that, you can begin to carry out work to attract financial resources and appropriate sources.
EXERCISES
10.1. Based on the data of the accounting statements of the company, given in item 6.1, determine the indicators of financial stability and market activity of this company.
10.2. Determine the level of the effect of financial leverage, if given:
Sales proceeds - 1 million 500 thousand rubles.
Variable costs - 1 million 050 thousand rubles.
Fixed costs - 300 thousand rubles.
Long-term loans - 150 thousand rubles.
Short-term loans - 60 thousand rubles.
Average calculated interest rate - 25%
Own funds - 600 thousand rubles.
Conditional income tax rate - 1/5
10.3. Find the level of leverage if given:
Sales - 230,000 units at a selling price per unit of 17 rubles,
Fixed costs - 310,000 rubles,
Variable costs per unit - 12 rubles,
Debt - 420,000 rubles at 11% per annum on average,
Share capital - 25,000 ordinary shares at a price of 60 rubles per share.

Is leverage favorable and why? Suppose another firm has the same share price, DIs, assets, and no borrowing. Which firm has the most earnings per share?
10.4. Determine the level of the effect of financial leverage, if given:
Sales volume - 9.25 million rubles.
Operating expenses - 8.5 million rubles.
Debt - 6 million rubles. at 15% per annum.
Share capital - 7.2 million rubles.
Profit tax rate is 24%.
Is Financial Leverage Favorable? At what price of borrowed capital will the leverage effect be equal to zero?
10.5. Mini-case "Financial alternatives"
Friday, 15.00. Vladislav Mamleev finishes his weekly report at the office of the investment firm IVNV. Stanislav Burobin, a partner of the firm, has been on a business trip for a week. He drove around the region, visiting potential clients of the firm and offering to invest their free funds with the help of IVNV. On Wednesday he called and told Vladislav's secretary that he would send his recommendations by fax on Friday. The secretary just brought this fax. There should be recommendations on investments in securities for three clients of the firm. Vladislav should call these clients and suggest this for consideration.
Fax text: “To Vladislav Mamleev. IVNV. I was offered to go skiing for the weekend. I'll be back on Wednesday.
My recommendations: (1) common stock; (2) preferred shares; (3) bonds by a svarrant; (4) convertible bonds; (5) revocable debentures. Stas ".
Vladislav picks up the phone to call clients. Suddenly, a thought comes to him that the proposals do not meet the investment needs of the client. He finds the files of each of the three clients in the closet. In them are enclosed brief references compiled by Stanislav. He reads these references:
Firm "MTV". He needs 8 million rubles now and 4 million for the next four years every year. A fast growing packaging company in three regions. Ordinary shares are sold through brokerage houses. The firm's shares are undervalued but should rise in the next 18 months. We are ready to issue any type of securities. Good management. Moderate growth is expected. The new machines should significantly improve profitability. Recently she paid off a debt of 7 million rubles. Has no debt, except for short-term.
Firm "Stroganov Plants". Needs 15 million rubles. Old management. The stock is not expensive but is expected to rise. Excellent outlook for growth and profitability next year. Low debt-to-equity ratio, the firm tries to buy back debt before maturity. Retains most of the profits by paying small dividends. Management does not want to allow outsiders to rule and vote. The money is needed to purchase equipment for the production of plumbing equipment.
Firm "Demidov Brothers". Needs 25 million rubles to expand furniture production. The firm started as a family business, now has 1,300 employees, 45 million in sales and sells its shares through brokerage houses. He is looking for new shareholders, but does not want to sell his shares on the cheap. Direct borrowed capacity no more than 10 million rubles. Good management. Good growth prospects. Very good income. Should spark investor interest. The bank is willing to provide short-term loans to the company.
After reading these certificates, Vladislav asked Stanislav's secretary if he had left any other materials on these companies. Answer: “I didn’t leave, but this morning I called and asked to confirm that the information in the clients' files is reliable and was personally verified by them”.
Vladislav considered the situation. You can, of course, postpone the decision for the next week. But there are still two hours today, and if you think about it, then there is enough time to make the offer more precise: which securities to recommend to each of the clients in particular. Resolved: I will make more reasoned proposals and call the customers, as promised, today.
Question (for small group work): Which funding profile is best for each client?
CONTROL TESTS
1. The structure of capital is:
1) the relationship between different sources of capital
2) the ratio of debt obligations to the amount of assets
3) the ratio of the value of common and preferred shares of the enterprise
2. The level of the effect of financial leverage:
1) always positive
2) always negative
3) can be both positive and negative
4) is always zero
3.Specify the ratio of the ratio of own funds:
1) ≥ 1,0
2) ≥ 0,1
3) ≥ 0,5
4. If the amount of borrowed funds becomes higher than the amount of the company's equity capital, the strength of the impact of financial leverage:
1) increases
2) falls
3) remains unchanged
5. The differential of financial leverage is:
1) the difference between the cost of equity and debt capital of the enterprise
2) the difference between the economic return on assets and the average calculated interest rate
3) the difference between the income received and the expenses incurred for the reporting period
6. Financial sustainability of the enterprise:
1) depends on the ratio of own and borrowed sources of financing
2) depends on the price of borrowed funding sources
3) depends on the ratio of circulating and non-circulating capital
7.To determine the share of equity capital in the financial structure of capital, the following indicator is used:
1) funding ratio
2) financial stability ratio
3) coefficient of maneuverability
4) the coefficient of autonomy
8.To assess the ability to service interest on borrowed capital are:
1) indicators of market activity
2) indicators of business activity
3) indicators of financial activity

Capital structure indicators (or solvency ratios)

Capital structure indicators characterize the degree of protection of the interests of creditors and investors with long-term investments in the company. They reflect the company's ability to pay off long-term debt. This group includes:

Ownership ratio;

Financial dependence ratio;

Creditors protection ratio.

Ownership ratio characterizes the share of equity in the capital structure of the company and the ratio of interests of the owners of the enterprise and creditors. In Western practice, it is believed that it is desirable to maintain this ratio at a sufficiently high level, since in this case it indicates a stable financial structure of funds, which is preferred by creditors.

The ownership ratio characterizing a fairly stable financial position, all other things being equal, is the ratio of equity to total funds at the level of 60%.

Can also be calculated debt capital ratio, which reflects the share of borrowed capital in funding sources. This ratio is the inverse of the ownership ratio.

Dependency ratio characterizes the firm's dependence on external loans. The higher it is, the more loans the company has, and the more risky the situation that can lead the company to bankruptcy. The high level of the coefficient also reflects the potential danger of the enterprise having a shortage of funds.

The interpretation of this indicator depends on many factors, in particular, such as: the average level of this ratio in other industries; the company's access to additional debt financing sources; stability of the company's economic activity.

It is believed that the coefficient of financial dependence in a market economy should not exceed one. High dependence on external loans can significantly worsen the position of the enterprise in the event of a slowdown in the rate of implementation, since the cost of paying interest on borrowed capital is classified as conditionally constant, i.e. those that the firm will not be able to reduce in proportion to the decrease in the volume of sales.

In addition, a high leverage ratio can lead to difficulties in obtaining new loans at the average market rate. This coefficient plays an important role in deciding the issue of the enterprise's choice of funding sources. Calculated as the ratio of debt to equity.

Creditors protection ratio (or interest coverage) characterizes the degree of protection of creditors from non-payment of interest on the loan. This indicator is used to judge how many times during the reporting period the company earned funds to pay interest on loans. This indicator also reflects the acceptable level of reduction in profit used to pay interest. It is found by dividing the sum of net profit, interest expense and income taxes by interest expense.