The process of optimizing the structure of assets and liabilities of an enterprise in order to increase profits in financial analysis called leverage. There are three types of it: production, financial and production-financial. In the literal sense, leverage is understood as a lever, with a small effort of which you can significantly change the results of production. financial activities enterprises.

To reveal its essence, let us present a factor model of net profit ( emergency) in the form of the difference between revenue ( VR) and production costs ( IP) and financial nature ( IF):

PE = VR-IP-IF (157)

Production costs are the costs of producing and selling products (full cost). Depending on the volume of production, they are divided into constant and variable. The relationship between these parts of costs depends on the technical and technological strategy of the enterprise and its investment policy. Investment of capital in fixed assets causes an increase in fixed costs and a relative reduction in variable costs. The relationship between production volume, constant and variable costs expressed by the production leverage indicator.

According to the definition of Kovalev V.V. production leverage - this is a potential opportunity to influence the profit of an enterprise by changing the structure of product costs and the volume of its output.

The level of production leverage is calculated by the ratio of the growth rate of gross profit DP% (before interest and taxes) to the growth rate of sales volume in natural or conditionally natural units (DVRP%).

It shows the degree of sensitivity of gross profit to changes in production volume. When its value is high, even a slight decline or increase in production leads to a significant change in profit. Enterprises with a higher level of technical equipment of production usually have a higher level of production leverage. As the level of technical equipment increases, the share of fixed costs and level of production leverage. With the growth of the latter, the degree of risk of shortfall in revenue necessary to reimburse fixed costs. You can verify this using the following example:

	A	IN	WITH
Product price, thousand rubles.
Product cost, thousand rubles.
Specific variable costs, thousand rubles.
Amount of fixed costs, million rubles.
Break-even sales volume, pcs.
Production volume, pcs.:
option 1
option 2
Production increase, %
Revenue, million rubles:
option 1
option 2
Amount of costs, million rubles:
option 1
option 2
Profit, million rubles:
option 1
option 2
Gross profit growth, %		82,5
Production leverage ratio		4,26

The data presented show that the highest value of the production leverage coefficient is that of the enterprise that has a higher ratio of fixed costs to variable ones. Each percent increase in production output with the current cost structure ensures an increase in gross profit at the first enterprise - 3%, at the second - 4.26%, at the third - 6%. Accordingly, with a decline in production, the profitability of the third enterprise will decrease twice as fast as that of the first. Consequently, at the third enterprise more high degree production risk .

Graphically, this relationship can be depicted as follows (Fig. 11). The x-axis shows the volume of production on the appropriate scale, and the y-axis shows the increase in profit (as a percentage). The point of intersection with the axis (the so-called “dead center” or equilibrium point or break-even sales volume) shows how much product each enterprise needs to produce and sell in order to recoup fixed costs. It is calculated by dividing the sum of fixed costs by the difference between the price of the product and specific variable costs. With the current structure, the break-even volume for the first enterprise is 2000, for the second - 2273, for the third - 2500. The larger the value this indicator and the slope of the graph To abscissa, the higher the degree of production risk.

Rice. 11. Dependence of production leverage

on the cost structure of the enterprise

The second component of formula (157) is financial costs (debt servicing costs). Their value depends on the amount of borrowed funds and their share in the total amount of invested capital. As already noted, an increase in financial leverage (the ratio of debt and equity) can lead to both an increase and a decrease in net profit.

The relationship between profit and the ratio of equity and debt capital is financial leverage. According to V.V. Kovalev, financial leverage is the potential ability to influence profits by changing the volume and structure of equity and debt capital. Its level is measured by the ratio of the growth rate of net profit ( DPP%):to the growth rate of gross profit ( DP%):

Kfl = D PE% / D P% (159)

It shows how many times the growth rate of net profit exceeds the growth rate of gross profit. This excess, as can be seen from the previous paragraph, is ensured due to the effect of financial leverage, one of the components of which is its leverage (the ratio of borrowed capital to equity). By increasing or decreasing leverage depending on prevailing conditions, you can influence profit and return on equity.

An increase in financial leverage is accompanied by an increase in the degree of financial risk associated with a possible lack of funds to pay interest on long-term loans. A slight change in gross profit and return on invested capital in conditions of high financial leverage can lead to a significant change in net profit, which is dangerous during a decline in production.

Let's carry out comparative analysis financial risk with different capital structures. Let's calculate how return on equity will change if profit deviates from the base level by 10%.

Total capital
Share of borrowed capital, %
Gross profit
Interest paid	-	-	-
Tax (30%)							31,5	37,5	43,5
Net profit							74,5	87,5	101,5
RSC, %	12,6		15,4	18,2		23,8	29,8		40,6
RSC range, %		2,8			5,6			10.8
D P%	-10	-	+10	-10	-	+10	-10	-	+10
DPP%	-10	-	+10	-13,3	-	+13,3	-16	-	+16
CFL		1,0			1,33			1,6

The data presented show that if an enterprise finances its activities only through own funds, the financial leverage ratio is 1, i.e. There is no leverage effect. In this situation, a 1% change in gross profit leads to the same increase or decrease in net profit. It is easy to notice that with an increase in the share of borrowed capital, the range of variation in return on equity (ROC), financial leverage ratio and net profit increases. This indicates an increase in the degree of financial risk of investing with high leverage. Graphically, this dependence can be shown as follows (Fig. 12).

50 75 100 150 200

Fig. 12. Dependence of return on equity and financial leverage on capital structure

The x-axis shows the amount of gross profit on the appropriate scale, and the y-axis shows the return on equity as a percentage. The point of intersection with the x-axis is called the financial critical point, which shows the minimum amount of profit required to cover the financial costs of servicing loans. At the same time, it reflects the degree of financial risk . The degree of risk is also characterized by the steepness of the graph’s slope to the x-axis.

The general indicator is production and financial leverage, which represents the product of the levels of production and financial leverage. It reflects the overall risk associated with the possible lack of funds to reimburse production costs and financial costs for servicing external debt.

For example, the increase in sales volume is 20%, gross profit - 60%, net profit - 75%.

Kp.l = 60 / 20 = 3; Kf.l = 75 / 60 = 125; Kp-f.l = 3 1.25 = 3.75. Based on these data, we can conclude that given the current structure of costs at the enterprise and the structure of capital sources, an increase in production volume by 1% will ensure an increase in gross profit by 3% and an increase in net profit by 3.75%. Each percent increase in gross profit will result in a 1.25% increase in net profit. These indicators will change in the same proportion during a decline in production. Using this data, it is possible to assess and predict the degree of production and financial risk of investment.

Operating leverage is identified by assessing the relationship between total revenue commercial organization, its earnings before interest and taxes and operating expenses.

The main elements of product cost are variable and fixed costs, and the relationship between them can be different and is determined by the technical and technological policy chosen by the enterprise. Changing the cost structure can significantly affect profit margins. Investing in fixed assets is accompanied by an increase in fixed costs and, at least in theory, a decrease in variable costs. However, the relationship is nonlinear, so finding the optimal combination of fixed and variable costs is not easy. This relationship is characterized by the category of production or operational leverage, the level of which also determines the amount of production risk associated with the company.

Production leverage is quantitatively characterized by the ratio between fixed and variable expenses in their total amount and the variability of the “earnings before interest and taxes” indicator. It is this profit indicator that allows us to isolate and evaluate the impact of operating leverage variability on financial results activities of the company.

The graph of changes in sales volume reflects the relationship between these indicators (Fig. 1.1.).

The analytical relationship between the parameters of the graph is represented by the following formula:

where S is sales in value terms;

VС - variable production costs;

FC - semi-fixed production costs;

GI is earnings before interest and taxes.

Fig. 1.1. Volume change graph

Converting this formula to the form

shows the sales volume of products Q in natural units.

It is called specific marginal profit, where p is the price of a unit of production, v is the variable production costs per unit of production.

Using this formula, asking necessary profit, you can calculate the quantity of products that need to be produced. For profit G/ = 0, the quantity of products in the “dead point”, or the profitability threshold (threshold sales volume), is calculated.

Such calculations are called the critical sales volume method - determining for each specific situation the volume of product sales in accordance with existing production costs and profits.

Production leverage is the relationship between changes in net profit and changes in sales volume.

Production leverage is a progressive increase in the amount of net profit with an increase in sales volume, due to the presence of fixed costs that do not change with an increase in production volume and sales of products 11 Kovalev V.V. Introduction to financial management. M.: Finance and Statistics 2008. p. 91.

There are three main indicators of industrial leverage: DOL d, DOL p, DOL r

Let's take a closer look at them.

The share of fixed production costs in total costs, or, equivalently, the ratio of fixed and variable costs (DOL d) is the first indicator of production leverage:

If the share of fixed costs is high, the company is said to have a high level of operating leverage. For such a company, sometimes even a slight change in production volumes can lead to a significant change in profit, since the company is forced to bear fixed costs in any case, whether the product is produced or not.

The ratio of net profit to fixed production costs (DOL p) is the second indicator of production leverage:

where Pn - net profit;

FC- fixed production costs.

The ratio of the rate of change in earnings before interest and taxes to the rate of change in sales volume in physical units (DOL r) is the third indicator of production leverage.

As follows from the definition, the indicator can be calculated by the formula:

where ДGI is the rate of change in earnings before interest and taxes (percentage);

D Q - rate of change in sales volume in natural percentage units).

The main purpose of these indicators is control and analysis; dynamics of the state of production.

All other things being equal, growth in the dynamics of DOL r indicators and DOL d as well as a decrease in DOL p mean an increase in the level of production leverage and an increase in the probability of achieving a given level of profit.

The third indicator after some transformations can be written using the equation:

Economic meaning of the DOL r indicator is quite simple - it shows the degree of sensitivity of profit before interest and taxes of a commercial organization to changes in production volume in natural units. Namely, for a commercial organization with a high level of production leverage, a small change in production volume can lead to a significant change in earnings before interest and taxes.

As can be seen from the equation, in the region of the “dead point”, when the GI profit approaches zero, the DOL r coefficient increases significantly.

The DOL r indicator is called the impact force operating leverage. It is concluded that at a short distance from the profitability threshold, the strength of the operating leverage will be maximum, and then begin to decrease again; and so on until a new jump in fixed costs with overcoming a new profitability threshold.

Impact production leverage associated with entrepreneurial risk.

Entrepreneurial risk is the danger of shortfall in profit before interest and taxes. Risk is the likelihood of a potential loss of invested funds, or less income compared to the project or plan. Risk can be assessed using statistical methods, built on the calculation of the standard deviation of a variable, such as sales or profit. In practice, methods of risk assessment using the leverage effect have found wide application. According to the concept of leverage

Total leverage = Operating leverage x Financial leverage

The assessment of the strength of production leverage depends on the ratio of fixed costs and profit of the enterprise. The strength of the impact is expressed as the percentage change in gross profit caused by each percentage change in sales revenue. The level of production leverage is calculated as the following ratio:

Gross Profit + Fixed Costs/Gross Profit = 1 + Fixed Costs/Gross Profit

The strength of the impact of operating leverage indicates the level of entrepreneurial risk of the enterprise: with a high value of the strength of operating leverage, each percent decrease in revenue results in a significant decrease in profit 11 Kovalev V.V. Workshop on financial management. Lecture notes with tasks. M.: Finance and Statistics, 2007, p. 59.

An analysis of the level of industrial leverage is presented in the next chapter of this course work.

Production and financial leverage

The general category is production and financial leverage. Its influence is determined by assessing the relationship of three indicators: revenue, production expenses and financial costs of net profit 11 Enterprise Financier's Handbook, 2nd ed. - M.: Infra-M, 2007, p. 152.

In Fig. 1.2. a diagram of the relationship between these indicators and the types of leverage related to them is presented.

Conditionally fixed expenses of a production and financial nature largely determine the final financial results of the enterprise. The choice of more or less capital-intensive activities determines the level of operating leverage. The choice of the optimal structure of sources of funds is associated with financial leverage. As for the relationship between the two types of leverage, it is quite common to believe that they should be inversely related - a high level of operating leverage in a company implies the desirability of a relatively low level of financial leverage and vice versa.

It is believed that the combination of powerful operating leverage with powerful financial leverage can be disastrous for an enterprise, as business and financial risks mutually multiply, multiplying adverse effects.

The task of reducing the overall risk associated with an enterprise comes down mainly to choosing one of three options.

1. A high level of financial leverage effect combined with a weak operating leverage effect.

2. Low level the effect of financial leverage combined with strong operating leverage.

3. Moderate levels of financial and operating leverage effects - and this option is often the most difficult to achieve.

Rice. 1.2. Relationship between income and leverage

Industrial and financial leverage summarizes the categories of industrial and financial leverage. Level it (DTL) can be assessed by the following indicator:

where I n - interest on loans and borrowings.

It follows that production and financial risks are accumulated in the form of a general risk, which is understood as the risk associated with a possible lack of funds to cover current expenses and expenses for servicing external sources 11 Financial management: Textbook / Ed. G. B. Polyak. - M.: Finance, UNITY, 2007, p. 80.

The calculation of production and financial leverage is also presented in the next chapter of the course work.

The process of optimizing the structure of assets and liabilities of an enterprise in order to increase profits in financial analysis is called leverage. There are three types: production; financial and production-financial.

To reveal its essence, let us present the factor model of net profit (NP) in the form of the difference between revenue (VR) and production costs (IP) and financial nature (IF):

PE = VR -IP - IF

Production costs are the costs of producing and selling products (full cost). Depending on the volume of production, they are divided into constant and variable. The ratio between these parts of costs depends on the technological and technical strategy of the enterprise and its investment policy. Investment of capital in fixed assets causes an increase in fixed costs and a relative reduction in variable costs. The relationship between production volume, fixed and variable costs is expressed by the production leverage indicator.

Production leverage- this is a potential opportunity to influence the profit of an enterprise by changing the structure of product costs and the volume of its output. The level of production leverage is calculated by the ratio of the growth rate of gross profit DP% (before interest and taxes) to the growth rate of sales volume in natural or conditionally natural units (DVPP%)

It shows the degree of sensitivity of gross profit to changes in production volume. When its value is high, even a slight decline or increase in production leads to a significant change in profit. Enterprises with higher technical equipment of production usually have a higher level of production leverage. As the level of technical equipment increases, the share of fixed costs and the level of production leverage increase. With the growth of the latter, the degree of risk of shortfall in revenue necessary to reimburse fixed costs increases.

Product price, thousand rubles. 800 800 800

Product cost thousand rubles. 500 500 500

Specific variable costs, thousand rubles. 300 250 200

Amount of fixed costs, million rubles. 1000 1250 1500

Break-even sales volume, pcs. 2000 2273 2500

Production volume, pcs.

option 1 3000 3000 3000

option 2 3600 3600 3600

Production increase, % 20 20 20

Revenue, million rubles

option 1 2400 2400 2400

option 2 2880 2880 2880

Amount of costs million rubles

option 1 1900 2000 2100

option 2 2080 2150 2220

Profit, million rubles

option 1 500 400 300

option 2 800 730 660

Gross profit growth, % 60 82.5 120

Production leverage ratio 3 4.26 6

The data presented show that highest value The enterprise that has a higher ratio of fixed costs to variable costs has an industrial leverage ratio. Each percent increase in output with the current cost structure ensures an increase in gross profit at the first enterprise - 3%, at the second - 4.26%, at the third - 6%. Accordingly, if production declines, profits at the third enterprise will decline twice as fast as at the first. Consequently, the third enterprise has a higher degree of production risk.

The second component is financial costs (debt servicing costs). Their size depends on the amount of borrowed funds and their share in the total amount of invested capital.

The relationship between profit and the debt/equity ratio is financial leverage. Potential opportunity to influence profits by changing the volume and structure of equity and debt capital. Its level is measured by the ratio of the growth rate of net profit (NP%) to the growth rate of gross profit (P%)

Kf.l. = PE% / P%

It shows how many times the growth rate of net profit exceeds the growth rate of gross profit. This excess is ensured due to the effect of financial leverage, one of the components of which is its leverage (the ratio of borrowed capital to equity). By increasing or decreasing leverage, depending on the prevailing conditions, you can influence the profit and return on equity. An increase in financial leverage is accompanied by an increase in the degree of financial risk associated with a possible lack of funds to pay interest on long-term loans. A slight change in gross profit and return on invested capital in conditions of high financial leverage can lead to a significant change in net profit, which is dangerous during a decline in production.

Example: Let's compare financial risk for different capital structures. Let's calculate how return on equity will change if profit deviates from the base level by 10%.

Total capital
Share of borrowed capital, %
Gross profit
Interest paid
Tax (30%)
Net profit
RSC range, %

The data show that if an enterprise finances its activities only from its own funds, the financial leverage ratio is equal to 1, i.e. There is no leverage effect. IN in this example a 1% change in gross profit results in the same increase or decrease in net profit. With an increase in the share of borrowed capital, the range of variation in return on equity capital (ROE), financial leverage ratio and net profit increases. This indicates an increase in the degree of financial risk of investing with high leverage.

Production and financial leverage- represents the product of the levels of production and financial leverage. It reflects the general risk associated with a possible lack of funds to reimburse production costs and financial costs of servicing external debt.

For example: the increase in sales volume is 20%, gross profit - 60%, net profit - 75%

To p.l. = 60 / 20 = 3; Kf.l = 75 / 60 = 1.25; Kp-f.l = 3*1.25 = 3.75

Based on this example, we can conclude that, given the current cost structure of the enterprise and the structure of capital sources, an increase in production volume by 1% will ensure an increase in gross profit by 3% and an increase in net profit by 3.75%. Each percent increase in gross profit will result in a 1.25% increase in net profit. These indicators will change in the same proportion during a decline in production. Using this data, you can assess and predict the degree of production and financial risk of investment.

Analysis of the solvency and creditworthiness of the enterprise.

One of the indicators characterizing the financial condition of an enterprise is its solvency, i.e. the ability to repay your payment obligations in a timely manner with cash resources.

Solvency analysis is necessary not only for an enterprise for the purpose of assessing and forecasting financial activities, but also for external investors (banks). Before issuing a loan, the bank must verify the borrower's creditworthiness. Enterprises that want to enter into economic relations with each other must do the same. You especially need to know about your partner’s financial capabilities if the question arises of providing him with a commercial loan or deferred payment.

The assessment of solvency is carried out on the basis of the liquidity characteristics of current assets, i.e. the time required to transform them into cash. The concepts of solvency and liquidity are very close, but the second is more capacious. Solvency depends on the degree of balance sheet liquidity. At the same time, liquidity characterizes not only the current state of settlements, but also the future. The analysis of balance sheet liquidity consists of comparing assets for assets, grouped by the degree of decreasing liquidity, with short-term liabilities for liabilities, which are grouped according to the degree of urgency of their repayment. The most mobile part of liquid funds is money and short-term financial investments; they belong to the first group. The second group includes finished products, goods shipped and accounts receivable. The liquidity of current assets depends on the timeliness of shipment of products, execution of bank documents, speed of payment document flow in banks, demand for products, their competitiveness, solvency of buyers, forms of payment, etc. The third group includes the transformation of inventories and work in progress into finished products.

Table 13. Grouping of current assets by degree of liquidity.

Current assets	To the beginning
Cash
Short-term financial investments
Total for the first group
Finished products
Goods shipped
Accounts receivable
Total for the second group
Productive reserves
Unfinished production
Future expenses
Total for the third group
Total current assets

Accordingly, the payment obligations of the enterprise are divided into three groups. The first group includes debts whose payment terms have already arrived. The second group includes debt that should be repaid in the near future. The third group includes long-term debt.

To determine current solvency, it is necessary to compare the liquid funds of the first group with the payment obligations of the first group. The ideal option is if the coefficient is one or a little more. According to the balance sheet, this indicator can be calculated only once a month or quarter. The company makes payments to creditors every day. Therefore, for the operational analysis of current solvency, daily control over the receipt of funds from the sale of products, from the repayment of receivables and other cash inflows, as well as for monitoring the fulfillment of payment obligations to suppliers and other creditors, a payment calendar is drawn up, in which, on the one hand, cash and expected means of payment are calculated, and on the other hand, payment obligations for the same period (1, 5, 10, 15 days, month). The operational payment calendar is compiled on the basis of data on the shipment and sale of products, purchases of capital goods, documents on payment of wages, advance payments to employees, bank account statements, etc. To assess the prospects for solvency, liquidity indicators are calculated: absolute; intermediate; general.

The absolute indicator of liquidity is determined by the ratio of liquid funds of the first group to the entire amount of short-term debts of the enterprise (III section of the liabilities side of the balance sheet). Its value is considered sufficient if it is above 0.25 - 0.30. If a company can currently pay off all its debts, then its solvency is considered normal. The ratio of liquid funds of the first two groups to the total amount of short-term debts of the enterprise is an intermediate liquidity ratio. Usually a 1:1 ratio is satisfactory. However, it may be insufficient if a large share of liquid funds consists of receivables, part of which is difficult to collect in a timely manner. In such cases, a ratio of 1.5:1 is required. The general liquidity ratio is calculated by the ratio of the total amount of current assets, including inventories and work in progress ( section III assets), to the total amount of short-term liabilities (section III of liabilities). A coefficient of 1.5 - 2.0 usually satisfies.

Table 14. Enterprise liquidity indicators.

Liquidity ratios are relative indicators and do not change for some time if the numerator and denominator of the fraction increase proportionally. Financial position may change over time. For example: a decrease in profit, level of profitability, turnover ratio, etc. For a more complete and objective assessment of liquidity, you can use the following factor model:

Current profit Balance sheet profit

Click = * = X1 * X2

Balance sheet profit Short-term debts

where X1 is an indicator characterizing the value of current assets per ruble of profit; X2 is an indicator indicating the ability of an enterprise to repay its debts through the results of its activities. It characterizes financial stability. The higher its value, the better the financial condition of the enterprise. To calculate the influence of these factors, you can use chain formulation or absolute difference methods.

When determining solvency, it is advisable to consider the structure of the entire capital, including the fixed capital. If shares, bills and other securities are quite significant and are quoted on the stock exchange, they can be sold with minimal losses. Securities guarantee better liquidity than some commodities. In such a situation, the company does not need a very high liquidity ratio, since working capital can be stabilized by selling part of the fixed capital.

Another indicator of liquidity is the self-financing ratio - the ratio of the amount of self-financed income (profit + depreciation) to the total amount of internal and external sources of financial income:

These ratios can be calculated by the ratio of self-financed income to value added. It shows the extent to which an enterprise finances its own activities. You can also determine how much self-financed income falls on one employee of the enterprise. When analyzing the state of solvency of an enterprise, it is necessary to consider the causes of financial difficulties, often their formation and the duration of overdue debts. The reasons for insolvency may be failure to fulfill the plan for production and sales of products, an increase in its cost; failure to fulfill the profit plan and, as a result, a lack of own sources of self-financing of the enterprise, a high percentage of taxation. One of the reasons for the deterioration of solvency may be the improper use of working capital: diversion of funds into accounts receivable, investment in excess reserves and for other purposes that temporarily do not have sources of financing.

The solvency of an enterprise is very closely related to the concept of creditworthiness. Creditworthiness- this is a financial condition that allows you to receive a loan and repay it in a timely manner. In the context of the reorganization of the banking system, the transition of banks to economic accounting, the strengthening of the role of credit, the approach to credit consumers is radically changing. The borrower has also changed significantly. Expanded independence, new forms of ownership - all this increases the risk of loan repayment and requires an assessment of creditworthiness when concluding loan agreements, resolving issues about the possibility and conditions of lending. When assessing creditworthiness, the reputation of the borrower, the size and composition of his property, the state of economic and market conditions, stability financial condition and others.

At the first stage Bank credit analysis studies diagnostic information about the client. The information includes the accuracy of paying bills to creditors and other investors, the development trends of the enterprise, the motives for applying for a loan, the composition and size of the enterprise’s debts. If this is a new enterprise, then its business plan is studied.

Information about the composition and size of the enterprise's assets (property) is used to determine the loan amount that can be issued to the client. Studying the composition of assets will allow us to establish the share of highly liquid funds that can, if necessary, be quickly sold and converted into money (shipped goods, accounts receivable).

Second phase Determining creditworthiness involves assessing the financial condition of the borrower and its stability. This takes into account not only solvency, but also a number of other indicators, the level of profitability of production, the working capital turnover ratio, the effect of financial leverage, the availability of own working capital, stability of performance production plans, specific gravity debt on loans in gross income, the ratio of the growth rate of gross output with the growth rate of bank loans, the amount and timing of overdue loans, and others.

When assessing the solvency and creditworthiness of an enterprise, it must be taken into account that the intermediate liquidity ratio should not fall below 0.5, and the overall ratio - below 1.5. At overall coefficient liquidity< 1 предприятие относится к первому классу, при 1 - 1,5 относится ко второму классу, а при >1.5 by third grade. If the company is classified as first class, this means that the bank is dealing with an uncreditworthy company. The bank can give him a loan only on special conditions or at a high interest rate. In terms of profitability level, the first class includes enterprises with an indicator of up to - 25%, the second class - 25-30%, and the third class - 30%. And so on for each indicator. The assessment can also be carried out expertly by bank employees. If necessary, specialists may be involved as experts.

The calculated value of the risk level P for a specific enterprise is determined by the simple arithmetic average: P = e Pi/n

The minimum value of the risk indicator, equal to 1, means that the bank takes risks when issuing a loan, and with a maximum value of 3, there is almost no risk. This indicator is used when deciding whether to issue a loan and the interest payment for the loan. If the bank takes a lot of risks, then it charges a higher interest rate for the loan.

When assessing the creditworthiness of business entities and the degree of risk by suppliers of financial and other resources, multidimensional comparative analysis can be used various enterprises for a whole range of economic indicators.

The current activities of any company when implementing a specific investment project is associated not only with production (operational) but also with financial risk. The latter is determined primarily by the structure of the sources of its financial resources and, in particular, their ratio based on equity or borrowed capital. The situation when a company, to implement a specific investment project, is not limited to its own capital, but attracts funds from external investors, is quite natural.

By attracting borrowed funds, the investment project manager has the opportunity to control larger cash flows and, therefore, implement more significant investment projects. At the same time, it should be clear to all borrowers that there are very specific limits to debt financing in general and investment projects in particular. These limits are determined mainly by the increase in costs and risks associated with attracting borrowed capital, as well as a decrease in the company's creditworthiness in this case.

When implementing a specific investment project, what should be the optimal ratio between own and attracted long-term financial resources and how will this affect the company's profits? The answer to this question can be obtained using the category of financial leverage, financial leverage, the strength of which is determined precisely by the share of borrowed capital in the total capital of the company.

Financial leverage – the potential opportunity to influence the net profit of an investment project (company) by changing the volume and structure of long-term liabilities; varying the ratio of own and borrowed funds in order to optimize interest payments.

The question of the advisability of using borrowed capital is directly related to the effect of financial leverage: increasing the share of borrowed funds can increase the return on equity.

The effect of financial leverage can be demonstrated quite convincingly and clearly using the famous DuPont formula (Dupont,) widely used in international financial management to assess the level of return on a company's equity capital (Return on equity , ROE):

where is the return on sales ratio; – asset turnover ratio; (Return on assets) – return on assets ratio; IL – financial leverage.

From this formula it follows that the return on capital ratio ( ROE) will depend on the amount of financial leverage, determined by the ratio of the company's own and borrowed funds. It is obvious, however, that with an increase in financial leverage, the return on capital ratio increases only if the return on assets ratio ( ROA) will exceed the interest rate on borrowed funds. Although this statement is understandable on a purely intuitive level, we will try to formalize the relationship between financial leverage and return on assets by answering the question under what conditions does financial leverage influence ROE turns out to be positive?

For this we introduce the following notation:

N1 - net profit; G.I. – earnings before interest and taxes (book profit – EBIT); E - equity; D – borrowed capital; j – interest rate on capital; t – tax rate.

Or, taking into account that the quantity represents the so-called operating room (production ) profitability , we can write

where is the adjusted interest rate on capital for

after paying taxes.

The resulting expression ROE is very meaningful, as it clearly shows that the impact of financial leverage, the strength of which is determined by the ratio D to E, depends on the ratio of two quantities r And i.

If the operating return on assets exceeds the adjusted interest rate on debt capital, the company receives a return on its invested capital that exceeds the amount it must pay to creditors. This creates a surplus of funds distributed among the company's shareholders, and, therefore, increases the return on capital ratio (ROE). If the operating return on assets is less than the adjusted borrowing rate, then the company is better off not borrowing these funds.

An illustration of the influence of the interest rate level on the company’s return on equity capital under conditions of financial leverage is given in Table. 6.14.

Table 6.14

Impact of interest rate onROE

Indicators for the investment project	Investment projects
	A		B
	Annual interest rate		Annual interest rate
Amount of assets, thousand dollars
Own capital, thousand dollars
Borrowed capital, thousand dollars
Earnings before interest and taxes ( G.I. ), thousand dollars
Return on assets ratio ( ROA ), %
Interest expenses, thousand dollars
Taxable profit (G/), thousand dollars
Taxes (t = 40%), thousand dollars
Net profit (LU), thousand dollars
Return on Capital Ratio (ROE) %

As follows from the above, two components can be distinguished in the effect of financial leverage.

Differential – the difference between the operating return on assets and the adjusted (by the profit tax rate) interest rate on borrowed funds.

Shoulder financial leverage, determined by the ratio between debt and equity capital.

It is obvious that there is an inextricable, but at the same time contradictory connection between these components. When the volume of borrowed funds increases, on the one hand, the leverage of financial leverage increases, and on the other, as a rule, the differential decreases, since lenders tend to compensate for the increase in their financial risk by increasing the price of their “product” - loan rates. In particular, there may come a time when the differential becomes negative. In this case, the effect of financial leverage will lead to very negative consequences for the company implementing the corresponding investment project.

Thus, a reasonable financial manager will not increase the financial leverage at any cost, but will regulate it depending, firstly, on the differential and, secondly, on the predicted market conditions.

The method of assessing financial leverage discussed above, while remaining the most well-known and used, is not at the same time the only one. For example, in an American school financial management A widely used approach involves comparing the rate of change in net profit (GM) with the rate of change in earnings before interest and taxes ( TGI ). In this case, the level of financial leverage (FL) can be calculated using the formula

Using this formula, they answer the question by how many percent will net profit change if there is a one percent change in profit before interest and taxes. Designating – interest on loans and borrowings, a t – average tax rate, we modify this formula into a more computationally convenient form

Thus, the coefficient FL receives another interesting interpretation - it shows how many times profit before interest and taxes exceeds taxable profit (67 – ). The lower limit of the financial leverage ratio is one. The greater the relative volume of borrowed funds attracted by the company, the greater the amount of interest paid on them (), the higher the level of financial leverage, the more variable the net profit, which, other things being equal, leads to greater financial instability, expressed in a certain unpredictability of the amount of net profit. Since the payment of interest, unlike, for example, the payment of dividends, is mandatory, then with a relatively high level of financial leverage, even a slight decrease in profit can have very negative consequences compared to a situation where the level of financial leverage is low.

Production and financial leverage

The considered production and financial leverage can be summarized by the category of production and financial leverage, which describes the relationship between revenue, production and financial expenses and net profit.

As a reminder, operating leverage measures the percentage change in earnings before interest and taxes for each percentage change in sales. And financial leverage measures the percentage change in net income relative to each percentage change in earnings before interest and taxes. Since both of these measures are related to percentage changes in earnings before interest and taxes, we can combine them to measure total leverage.

Total leverage indicator ( TL) represents the ratio of the percentage change in net income per unit percentage change in sales

If you multiply and divide the right side of this equation by the percentage change in earnings before interest and taxes ( TG1 ), then we can express the total leverage indicator through operating indicators ( OL ) and financial (FL) leverage

The relationship between operating and financial leverage indicators for a certain company, dollars, is given below:

The economic interpretation of the leverage indicators calculated above is as follows: given the current structure of sources of funds and conditions of production and financial activities in the company:

• an increase in production volume by 10% will lead to an increase in earnings before interest and taxes by 16%;
• an increase in earnings before interest and taxes by 16% will lead to an increase in net profit by 26.7%;
• an increase in production volume by 10% will lead to an increase in the company's net profit by 26.7%.

Practical actions to manage the level of leverage do not lend themselves to strict formalization and depend on a significant number of factors: stability of sales, degree of market saturation with relevant products, availability of reserve borrowed capital, pace of company development, current structure of assets and liabilities, state tax policy regarding investment activities, current and the promising situation on stock markets etc.

Leverage - means the action of a small force (lever), with which you can move quite heavy objects.

Operating leverage.

Operating (production) leverage is the relationship between the structure of production costs and the amount of profit before interest and taxes. This operating profit management mechanism is also called „operating leverage". The operation of this mechanism is based on the fact that the presence of any amount of constant types in operating costs leads to the fact that when the volume of product sales changes, the amount of operating profit always changes at an even higher rate. In other words, fixed operating costs (costs), by the very fact of their existence, cause a disproportionately higher change in the amount of operating profit of the enterprise with any change in the volume of product sales, regardless of the size of the enterprise, the industry characteristics of its operating activities and other factors.

However, the degree of such sensitivity of operating profit to changes in the volume of product sales is ambiguous at enterprises that have different ratios of fixed and variable operating costs. The higher the share of fixed costs in the total operating costs of the enterprise, the more the amount of operating profit changes in relation to the rate of change in the volume of product sales.

The ratio of fixed and variable operating costs of an enterprise, meaning the level of production leverage is characterized by "operating leverage ratio" which is calculated using the following formula:

Where:
Kol - operating leverage ratio;

Ipost - the amount of fixed operating costs;

Io is the total amount of transaction costs.

The higher the value of the operating leverage ratio at an enterprise, the more it is able to accelerate the growth rate of operating profit in relation to the growth rate of product sales. Those. at the same rate of growth in the volume of product sales, an enterprise that has a higher operating leverage ratio, other things being equal, will always increase the amount of its operating profit to a greater extent in comparison with an enterprise with a lower value of this ratio.

The specific ratio of the increase in the amount of operating profit and the amount of sales volume achieved when a certain coefficient operating leverage, characterized by the indicator "operating leverage effect". The fundamental formula for calculating this indicator is:

Eol - the effect of operational leverage, achieved at a specific value of its coefficient in the enterprise;

ΔGOP - growth rate of gross operating profit, in%;

ΔOR - growth rate of product sales volume, in%.

The effect of production leverage (operating leverage) is a change in sales revenue leading to a change in profit

The rate of volume growth expressed in % is determined by the formula:

I is the change indicating the growth rate, in%;
P.1 – volume indicator obtained in the 1st period, in rubles;

P.2 – volume indicator obtained in the 2nd period, in rubles.

Financial leverage.

Financial leverage is the relationship between the structure of sources of funds and the amount of net profit.

Financial leverage characterizes the use of borrowed funds by an enterprise, which affects the change in the return on equity ratio. Financial leverage arises with the appearance of borrowed funds in the amount of capital used by the enterprise and allows the enterprise to obtain additional profit on its own capital.

An indicator reflecting the level of additional profit on equity capital at different shares of borrowed funds is called the effect of financial leverage (financial leverage).

The financial leverage effect is calculated using the formula:

EFL - the effect of financial leverage, which consists in an increase in the return on equity ratio, %;

C - income tax rate, expressed as a decimal fraction;

CVR - gross return on assets ratio (ratio of gross profit to average asset value), %;

PC - the average amount of interest on a loan paid by an enterprise for the use of borrowed capital (price of borrowed capital), %;

ZK - the amount of borrowed capital used by the enterprise;

SK is the amount of the enterprise's own capital.

The formula has three components.

1. Tax corrector of financial leverage (1 – C).

2. Financial leverage differential (KLR – PC).

3. Financial leverage ratio or “leverage” of financial leverage (LC/SC).

Using the effect of financial leverage allows you to increase the level of profitability of an enterprise's equity capital. When choosing the most appropriate source structure, it is necessary to take into account the scale of current income and profit when expanding activities through additional investment, capital market conditions, interest rate dynamics and other factors.

Dividend policy.

The term "dividend policy" is associated with the distribution of profits in joint stock companies.

Dividend is part of the profit of a joint stock company, annually distributed among shareholders in accordance with the number (amount) and type of shares in their possession. Usually the dividend is expressed in monetary amount per share. The total amount of net profit to be paid as a dividend is established after paying taxes, contributions to funds for expansion and modernization of production, replenishment of insurance and other reserves, payment of interest on bonds and additional remuneration to directors of the joint-stock company.

Dividend policy is the policy of a joint stock company in the area of ​​using profits. The dividend policy is formed by the board of directors depending on the goals of the joint-stock company, and determines the shares of profit that: are paid to shareholders in the form of dividends; remain as retained earnings and are also reinvested.

The main goal of developing a dividend policy is to establish the necessary proportionality between the current consumption of profits by the owners and its future growth, maximizing the market value of the enterprise and ensuring its strategic development.

Based on this goal, the concept of dividend policy can be formulated as follows: dividend policy is component general profit management policy, which consists in optimizing the proportions between the consumed and capitalized parts of it in order to maximize the market value of the enterprise.

The size of the dividend is influenced by the following factors:

Amount of net profit;

Possibility of directing profits to pay dividends, taking into account other costs;

The share of preferred shares and the fixed level of dividends declared on them;

The amount of authorized capital and the total number of shares.

Net profit that can be used to pay dividends is determined by the formulas:

PPdoa = (PP × Dchp / 100) – (Kpa × Dpa / 100)

NPDOA - net profit directed to the payment of dividends on ordinary shares;

PE – net profit;

DPP – the share of net profit allocated for the payment of dividends on preferred shares;

Kpa – par value of the number of preferred shares;

Dpa – level of dividends on preferred shares (as a percentage of par value).

Doa = (PPd / (Ka – Kpa)) × 100

Doa – level of dividends on ordinary shares;

NPV – net profit allocated for the payment of dividends on shares;

Ka is the par value of the number of all shares;

Kpa is the nominal value of the number of preferred shares.

Factors influencing the development of dividend policy:

Legal factors (payment of dividends is regulated by the Law of the Russian Federation “On Joint Stock Companies”);

Conditions of contracts (restrictions associated with the minimum share of reinvested profit when concluding loan agreements with banks);

Liquidity (payment not only in cash, but also other property, for example shares);

Expansion of production (restrictions on dividend payments);

Interests of shareholders (security high level market value of the company);

Information effect (information about non-payment of dividends can lead to a decrease in stock prices).

Dividend policy directly depends on the chosen method of dividend payment, reflected in various types of dividend policy (table).

Table

Related information.