home Remote work and freelance The ratio of the value of own and borrowed capital. The ratio of own and borrowed funds. Capital ratio

The ratio of the value of own and borrowed capital. The ratio of own and borrowed funds. Capital ratio

The use of constant cash injections into the activities and functioning of the company in the form of capital investments is an essential element for any financial activities in market conditions. In order to introduce new technological solutions, review existing technologies, conquer new niches in the market, the company always necessary element are finance and capital, investment.

The concept of capital

Under the concept of the capital of the company understand the amount of its financial resources, through which it is possible to carry out entrepreneurial, investment and financial activities of the company.

In the practice of an enterprise, capital is reflected in the liabilities side of the balance sheet in the form equity and obligations of the company to counterparties.

Capital is classified into several types:

money capital;
real capital.

Money capital takes into account the sum of all funds in the turnover of the company and participating in the production process. It is divided into own and borrowed.

Firms understand real capital as material capital, which is a form of ownership expressed in natural units. This includes fixed and working capital.

There are a number of factors that have a certain influence on the choice of sources of financing for a company:

the market in which the company operates;
the size of the company and the direction of its activities;
applied technologies in the production process;
applicable taxation system;
state influence;
work with banks;
company image.

Capital structure

The formation of the capital structure of the company is based on the features of its functioning in the market. The final performance of the company is very dependent on the rationality of the capital structure. It is also able to influence the profitability and efficiency of funds, the liquidity of the company and its solvency, the level of risks.

The capital structure implies the ratio of all available sources of equity and debt capital. Simply put, this is the ratio of own and borrowed capital to each other.

Equity

Equity capital includes all the property that a company has in terms of a monetary indicator, for example, in rubles. This is a total assessment of the production potential of the company at the market price at the time of its acquisition, taking into account depreciation amounts. Equity capital can be understood as the difference between the company's assets in monetary terms and existing liabilities.

The composition of capital is formed on the basis of certain sources. These include: authorized capital, individual contributions of the founders, profit from the activities of the enterprise. Chief among them is the authorized capital.

Equity capital can be classified into invested and accumulated profit. The first of these is total amount funds that were received by making investments in the development and formation of the company. This includes authorized and additional capital, as well as reserves.

Under the accumulated profit understand the entire amount of profit that was earned by the company for the periods (past and current). Taxes and dividends must be deducted from the amount of profit.

Borrowed capital

Borrowed capital of the enterprise are certain funds attracted by the enterprise, which were directed to the functioning of the company or for its specific purposes. These funds can be taken for a certain period and under certain conditions. These funds include loans and borrowings, financial assistance provided by other companies or the state, the amount of collateral and other sources of funds provided on the basis of any guarantees of return.

Borrowed capital is classified into long-term and short-term. The long-term liabilities of the firm are associated with a period of more than 1 year. Short-term - up to 1 year.

Comparison of own and borrowed capital

When comparing the two types of capital, we can draw conclusions on the main differences:

equity gives the right to participate in the activities of the company, and borrowed excludes such a right;
change in the share of one of the types of capital in overall structure affects the financial stability of the firm. Thus, an increase in the share of loans entails an increase in the company's debt and reduces its stability. This ratio is manifested by calculating the coefficient of the structural relationship between debt and equity capital according to the formula, which will be discussed below;
in the event of bankruptcy, borrowed capital has the priority right to receive funds;
the income of the owner in a situation of borrowed capital does not depend on the dynamics of the company's profit, and the income of owners from equity capital, on the contrary, does.

Borrowed capital is recognized as a "cheaper" source of financing, which is the reason for its widespread use in the practice of companies. but high share such capital in the structure reduces the financial stability of the company, which can lead to bankruptcy. An optimal ratio between loans and own funds is required.

The structure of own and borrowed capital can be assessed through the calculation of coefficients. These indicators include:

equity concentration ratio;
coefficient of financial independence;
ratio of own and borrowed capital shows the ratio between the structural shares.

Equity concentration

The first coefficient is calculated by the formula:

K ksk \u003d K s / K * 100%,
where K with - equity, t. R.;
TO - common capital firms, i.e.

As part of this indicator the share of own capital in the structure is determined. The standard for this ratio is 60%, which means that the share of equity must be at least 60%.

Financial independence

The second coefficient is calculated by the formula:

K fn =SK / A = p. 1300/p. 1700
where SC - equity, t.
A - the assets of the company, i.e.

We can talk about the duality of the nature of this indicator:

on the one hand, an increase in this ratio leads to an increase in the financial independence of the company with an increase in equity capital;
on the other hand, the growth of the coefficient entails a decrease in the return on equity.

The company's financial independence ratio shows the proportion of the company's assets that can be covered by the company's own capital. The rest of the share is covered by borrowed funds. The growth dynamics of this indicator is considered positive, which means an increase in the probability of repayment of debts by the company at its own expense. This situation means the growth of financial independence.

The normative value of this coefficient exceeds 0.5. A high value indicates the presence of the state of the company, in which it can cover all its obligations with the necessary funds on its own, that is, without creditors. This situation also indicates the independence of the company from creditors.

If the coefficient is close to 1, then this means that the enterprise is developing at a slow pace, there are restraining mechanisms. If an enterprise tries to refuse from borrowed funds, then it loses the possibility of additional profit growth and income generation through the expansion of production.

The ratio of shares in the capital structure

The last coefficient of the ratio of own and borrowed capital is the most significant in the calculations. It is defined as follows:

K s \u003d K s / K z \u003d p. 1300 / (p. 1500 + p. 1400),
where K z - borrowed capital, t.
K c - equity, t.

The indicator reflects the availability of own funds in comparison with borrowed funds. Otherwise, it can be called financial leverage (leverage). This ratio is very important in financial calculations and evaluation of the financial performance of the company. The ratio of debt and equity capital and the formula for its calculation characterize the degree of risk of the company, its stability and profitability.

Financial leverage appears when an enterprise begins to attract borrowed funds in the absence of its own to conduct business and expand the business. The calculation of this indicator allows the company to determine the point that should not be crossed when using creditors' funds, so as not to become financially dependent on them and not go bankrupt.

Borrowed funds are not always negative, on the contrary, they bring profit in the proper amount, as they allow you to finance the increase in volumes of the company and the expansion of its activities, obtaining additional profit based on changes. The financial stability of the company depends on the amount of borrowed funds. Since if it is significantly exceeded, the company falls into bondage of dependence on creditors, and this is the path to bankruptcy.

Options for using the ratio of equity and debt capital:

a positive coefficient at which the profit from loans is higher than the payment for them;
a neutral coefficient at which the profit from loans is equal to the payment for them;
a negative coefficient at which the payment for the maintenance of loans is higher than the income from them.

The latter option is negative for the enterprise and requires optimization of the capital structure.

Structure optimization issues

At optimal structure of the company's capital, there is such a ratio of its parts, in which it is possible to provide a rational combination between the financial profitability ratio and the financial stability of the company. In such a situation, the maximum value of the firm in the market is achieved. The optimization process ensures that the firm adapts to new conditions external environment for the purpose of her survival.

It is quite difficult to provide a company with clear instructions on how to optimize capital, since there is no universal recipe due to the impact on the company of a number of factors. It is possible to formulate optimization criteria in the form of postulates:

sufficient level of profitability and risk of the company;
decrease in WACC (weighted average cost of capital);
increase in the value of the company in the market.

The basic principles of optimization are as follows:

the financing structure is consistent with the overall strategy of the company;
increasing the value of the company through financial leverage;
an increase in debt makes sense in the case of restrictions on the investment of the company.

Conclusion

The ratio of equity to debt capital is very significant in the financial calculations of the company, as it allows you to understand the proportion that the company's own and borrowed funds make up. Its knowledge is essential for investors, bankers, creditors and business owners.

A selection of the most important documents on request Debt to equity ratio (regulations, forms, articles, expert advice and much more).

Articles, comments, answers to questions

Determining the correct discount rate is one of the most discussed and most contentious issues, since even a small change in the rate will significantly affect the amount of assets and liabilities recognized by the lessee. In addition, the chosen rate will have a significant impact on many financial ratios of the tenant company. For example, the ratio of borrowed and own funds, current liquidity and others. In table. 1 shows the impact of a higher discount rate on the existing coefficients used to analyze the company's financial condition.

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Alternative concept approach economic entity is the concept of the parent company. The main idea of this concept is that consolidated reporting is a continuation of the parent company's reporting. The followers of this concept consider own and borrowed capital separately from each other. They regard the Modigliani-Miller theory as untenable, since the size of debt and the level of leverage affect the risk and expected return of shareholders. They claim that more high level borrowed capital compared to own leads to greater risks for shareholders. And the ratio of borrowed and own funds can be an indicator for investors about the amount of expected cash flows and, therefore, to assess the value of the company. Therefore, within the framework of this concept, it is inappropriate to summarize information on equity and borrowed funds in the balance sheet, since this may affect the adoption of rational decisions by investors.

Regulations: Debt to equity ratio

The allowable value for such indicators as "debt/equity ratio", "current liquidity ratio (total coverage ratio)" and "net assets" is set at 40% (previously - 75%).

According to the results of calculations, the ratio of borrowed and own funds is estimated from the standpoint of its financial stability and solvency; solvency; liquidity trends.

That is, the ratio of the value of own funds to the value of liabilities. If the coefficient takes a value less than 1, then this indicates that the company has a large share of borrowed funds and financial position unstable. In general, the ratio of own and borrowed funds characterizes the enterprise from the same side as the coefficient of autonomy.
To calculate the profitability of the main activity, it is necessary
Divide the sales profit by the sales revenue. This indicator shows how effective the main activity of the enterprise.
After the main coefficients are calculated, it is necessary to divide them into categories depending on the actual value (Table 2.6) and calculate the class rating of the borrower using the following formula:
Class = category of coefficient multiplied by indicator weight. Based on the score, the borrower belongs to one of the following classes:
1st class, if the amount is in the range from 1 to 1.05;
2nd class - from 1.05 to 2.42;
3rd grade - more than 2.42.
Table 2.6
Categories of indicators depending on
FROM THE ACTUAL VALUES OF PERFORMANCE INDICATORS Coefficient 1st category (class) 2nd category 3rd category K1 0.2 and above 0.15-0.2 Less than 0.1 5 K2 0.8 and above 0.5-0 .8 Less than 0.5 K3 2.0 and above 1.0-2.0 Less than 1.0 K4 Except for trading 1.0 and above 0.7-1.0 Less than 0.7 For trading 0.6 and above 0 ,4-0.6 Less than 0.4 К5 0.1 5 and more Less than 0.1 5 Unprofitable FIRST-CLASS BORROWERS ARE LOAND ON PREFERENTIAL TERMS, SECOND-CLASS BORROWERS (TO WHICH THE ANALYZED ENTERPRISE RELATES) - ON NORMAL. ISSUANCE OF LOANS TO ENTERPRISES OF THE 3rd CLASS IS ASSOCIATED WITH RISK.
BANKS IN DEVELOPED CAPITALIST COUNTRIES USE A COMPLEX SYSTEM OF A LARGE NUMBER OF INDICATORS TO ASSESS THE CREDIT OF CUSTOMERS. THIS SYSTEM IS DIFFERENTIATED DEPENDING ON THE NATURE OF THE BORROWER (FIRM, INDIVIDUAL, TYPE OF ACTIVITY), AND CAN ALSO BE BASED ON BOTH BALANCE AND TURNOVER INDICATORS OF CLIENTS' REPORTING. MONITORING THE FINANCIAL CONDITION OF LARGE,
ECONOMIC AND SOCIALLY SIGNIFICANT ENTERPRISES

The economic meaning of the ratio of debt and equity capital

Based on the analysis of the ratio of own and borrowed funds, one can understand the capital structure of the company - how much equity and borrowed funds does it have to carry out current activities. The more own funds, the higher the financial stability, and accordingly, on the contrary, the predominance of borrowed capital tells us about a possibly unsatisfactory financial condition.

Ratio Users

The results of the calculation of the debt-to-equity ratio provide important and necessary information about counterparties to suppliers who represent long-term payment deferrals. As a rule, this large companies, which significant amount buyers of their goods, works, services. The more and more often the supplier company provides the organization with deferred payments for goods delivered or work performed, the greater the risk of non-receipt or late receipt of funds. The ratio of debt and equity reveals the capital structure of the counterparty and serves as a kind of guarantor of payment of deferred payments.

When the company's own funds grow and the amount of borrowed capital decreases, this indicates a fairly rapid improvement financial stability of the company and growth of own assets. If the growth rate of borrowed capital is higher than the growth rate of equity capital, the situation in the structure is no longer so positive, because despite the growth of the company's own assets, the amount of borrowed capital increases faster, which means that the financial stability indicator still decreases.

To calculate the ratio of borrowed and own funds, the amount of borrowed capital should be divided by the amount of the company's own capital. In other words, the ratio shows how much borrowed funds of the organization account for 1 ruble of equity.

Borrowed capital is all borrowed from outside cash and other property (for example, a loan or credit). In other words, these are all short-term and long-term liabilities of the company.

You should be aware that raising borrowed capital is beneficial for the organization, since the costs of raising borrowed capital (for example, interest on loans and borrowings) are included in production cost or services provided. Thus, the organization reduces the tax base for income tax, and, accordingly, the tax itself. However, this rule is valid within reasonable limits. If the share of borrowed capital is large compared to own capital, it becomes risky to invest in such an organization.

How to find out how much own and borrowed funds the organization has? Let's turn to financial statements more specifically, the balance sheet. For balance lines, the formula will be as follows:

In the event that management, investors or other interested parties need information about the ratio for an earlier period, the formula in the old form of the Balance Sheet should be used.

Standard values

If the coefficient indicator is equal to 1, then the amount of borrowed funds corresponds to the amount of equity capital. This is a value that is extremely rare in practice. The most common cases when the indicator is less than 1 are presented in the table:

Table 1. Normative coefficient values

Indicator value	Characteristics of the financial condition of the organization
0>Coefficient SK/SK >0.5	Stable financial position, the organization practically does not use the effect of financial leverage due to the small amount of borrowed capital
0.5>SC/SC Ratio >0.7	The most ideal ratio of debt and equity, the financial position is also considered stable
SC/SC ratio >0.7	Unstable financial position, the amount of borrowed capital practically corresponds to the amount of own capital. In practice, this means that most companies with such a ratio are close to bankruptcy and are considered insolvent.

As an example of calculation, let's take the data of the balance sheet of the organization OJSC Khleb. The company is engaged in the production and wholesale and retail sale of bakery products, pasta, cereals.

table 2. Balance sheet data

Name of indicator
ASSETS
I. NON-CURRENT ASSETS
Intangible assets
Research and development results
Intangible search assets
Tangible Exploration Assets
fixed assets
Profitable investments in material values
Financial investments
Deferred tax assets
Other noncurrent assets
Total for Section I
II. CURRENT ASSETS

Value added tax on acquired valuables
Receivables
Financial investments (excluding cash equivalents)
Cash and cash equivalents
Other current assets
Total for Section II
BALANCE
LIABILITY
III. CAPITAL AND RESERVES 6
Authorized capital (reserve capital, authorized capital, contributions of comrades)
Own shares repurchased from shareholders
Revaluation of non-current assets
Additional capital (without revaluation)
Reserve capital

Total for Section III
IV. LONG TERM DUTIES
Borrowed funds
Deferred tax liabilities
Estimated liabilities
Other liabilities
Total for Section IV
V. SHORT-TERM LIABILITIES
Borrowed funds
Accounts payable
revenue of the future periods
Estimated liabilities
Other liabilities
Section V total
BALANCE

Let's calculate the indicator for 2017:

For 2016, the calculation of the indicator will look like this:

The report presents data for two reporting periods. The calculation of the indicator for two periods gives us an estimate of the indicator in dynamics. The calculation results show us that the company's financial position was stable in both 2016 and 2017. The amount of borrowed capital decreases, the company practically does not use the effect of financial leverage (taking into account the specifics of the company's activities, this is an insignificant factor). The company has enough own funds to carry out current activities, which allows it to reduce short-term debt and eliminate long-term debt (in other words, the company stopped using long-term borrowed funds in 2017).

Conclusion

The formula for calculating the debt-to-equity ratio is simple and based on the organization's balance sheet data. It allows you to quickly obtain the necessary assessment of the company's financial stability and analyze the balance sheet structure for the ratio of debt and equity capital.

In the article, we will analyze the ratio of borrowed and own funds, its economic meaning and the formula for calculating the balance sheet.

Debt to equity ratio

Debt to equity ratio- characterizes the financial stability of the enterprise, and shows how much borrowed funds account for a unit of equity capital. This ratio reflects the capital structure and gives general characteristics about the financial condition and represents the ratio of the borrowed (attracted) capital of the enterprise to its own. The indicator is calculated according to the balance sheet - Form No. 1.

The formula for calculating the ratio of borrowed and own funds

Normative value of the ratio of borrowed and own funds

The higher the value of the coefficient, the higher the risk of bankruptcy of the enterprise. High values of the ratio of borrowed and own funds (> 1) are allowed in the event that the rate of circulation of receivables is higher than the rate of turnover of material working capital (cash is quickly received by the enterprise), then the ratio of borrowed and own funds may be higher than the standard. For each specific enterprise, its own acceptable level of the indicator is determined, the table below shows the values of the indicator and the characteristics of the financial condition.

One coefficient of the ratio of own and borrowed funds is not enough to assess the financial stability of the enterprise. In practice, additional indicators of financial independence are often calculated, one of the most common is the autonomy coefficient. Read more about it in the article "

The ratio of the value of own and borrowed capital. The ratio of own and borrowed funds. Capital ratio

The concept of capital

Capital structure

Equity

Borrowed capital

Comparison of own and borrowed capital

Equity concentration

Financial independence

The ratio of shares in the capital structure

Structure optimization issues

Conclusion

Articles, comments, answers to questions

Regulations: Debt to equity ratio

More on the topic Equity to Debt Ratio:

The economic meaning of the ratio of debt and equity capital

Ratio Users

Standard values

Conclusion

Debt to equity ratio

The formula for calculating the ratio of borrowed and own funds

Normative value of the ratio of borrowed and own funds