The ratio of borrowed and own working capital. Ratio of debt and equity capital. II. current assets

Refers to coefficients financial stability enterprises.

The ratio of borrowed and own funds - what shows

The ratio of borrowed and own funds - shows how much borrowed funds per 1 rub. own funds.

Debt to equity ratio - formula

The general formula for calculating the coefficient:

Calculation formula according to the old balance sheet

Debt to equity ratio - value

The economic meaning of the ratio of borrowed and own funds is to determine how many units of borrowed financial resources accounted for per unit of sources of own funds.

The level of this coefficient above 1 indicates a potential danger of a lack of own Money which may cause difficulties in obtaining new loans.

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More found about the ratio of borrowed and own funds

Standards for the financial stability of Russian enterprises: industry specifics
Methodical approach to the analysis of solvency Therefore, for the convenience of analysis, we will consider the inverse indicator - the ratio of equity and borrowed funds Ksootn - the ratio of equity and borrowed funds of the IC
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Topical issues and modern experience in analyzing the financial condition of organizations - part 8 II The ratio of own and borrowed funds K4 Is one of the characteristics of the financial stability of an enterprise and
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Financial analysis of the enterprise - part 4 The autonomy coefficient in 2003 decreased compared to 2002, and in 2004 it increased slightly compared to 2003, but still did not reach the allowable norm of 0.5, which means that the company needs borrowed funds According to the results of the obtained ratio coefficients borrowed and own funds 2002 2004
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The key to survival and the basis for the stable position of the enterprise is its financial stability, i.e. the organization's ability to timely cover the costs invested in fixed and working capital, intangible assets from its own funds, and pay off its obligations. The nature of its relationship with the organization depends on the financial stability of the organization. business partners- suppliers, buyers, commercial banks, potential investors, shareholders. Financial stability reflects the financial condition of the enterprise, in which it is able, through the rational management of material, labor and financial resources, to create such an excess of income over expenses, at which a stable cash inflow is achieved, allowing the enterprise to ensure its current and long-term solvency, as well as to meet investment expectations. owners.

Financial sustainability can be quantified in two ways:

from the position of the structure of sources of funds;

from the standpoint of costs associated with servicing external sources.

Accordingly, two groups of indicators are distinguished, conventionally called capitalization ratios and service ratios for external sources of financing (coverage).

In the group of capitalization ratios, first of all, the ratio of borrowed and own funds is distinguished. However, this indicator gives only a general assessment of financial stability.

The ratio of borrowed and equity is equal to the ratio of the sum of long-term and short-term liabilities to the equity capital of the organization. It shows how much borrowed funds account for each ruble of own funds invested in the assets of the enterprise. The growth of this indicator indicates an increase in the dependence of the enterprise on borrowed capital, i.e. about some decrease in financial stability. The recommended value of the indicator is less than 0.3.

Long-term + Short-term

obligations obligations

Xoot.ZiSK = –––––––––––––––––––––––––––– (1)

Equity

Autonomy coefficient(financial independence or concentration of equity capital) is equal to the share of own sources of financing as a result of the balance sheet of the enterprise and shows specific gravity own funds in the total amount of funding sources. The growth of the coefficient means the growth of financial independence. The value of this indicator is more than 0.5.

Equity

Ka = –––––––––––––––––––– (2)

Equity in working capital is calculated as the difference between the organization's own capital and its non-current assets.

The presence of own capital in circulation (own working capital) is one of the important indicators financial stability of the organization. The absence of own capital in the turnover of the organization indicates that all the working capital of the organization, and also, possibly, part of the non-current assets (in the case of a negative value of the indicator) are formed at the expense of borrowed funds (sources).

SKOS = Own - Non-current (3)

capital assets

Equity ratio is calculated as the ratio of own funds in circulation to the total amount of working capital.

The indicator characterizes the ratio of own and borrowed working capital and determines the degree of security of the economic activity of the organization with its own working capital necessary for its financial stability. The recommended value is more than 0.1.

Own – Non-current

capital assets

Koss = ––––––––––––––––––––––– (4)

working capital

Equity maneuverability ratio is defined as the ratio of equity in working capital to the amount of equity. The coefficient shows what part of it is used for financing current activities, i.e. invested in working capital, and what part is capitalized. The value of this indicator can significantly vary depending on the sectoral affiliation of the enterprise.

Own – Non-current

capital assets

Kman = –––––––––––––––––––––––– (5)

Equity

Long-term borrowing ratio characterizes the share of long-term loans and borrowings attracted to finance the activities of the enterprise, along with its own funds, in the total capital of the organization, which is understood as the total value of long-term sources of funds. The growth of this indicator in dynamics is, in a certain sense, a negative trend, meaning that enterprises are becoming more and more dependent on external investors.

long term duties

Kdncs = ––––––––––––––––––––––––– (6)

Own + Long-term

liability capital

As a rule, the owners of the enterprise (shareholders, investors and other persons who have made contributions to the statutory fund) prefer a reasonable growth in the dynamics of the share of borrowed funds. On the contrary, creditors (suppliers of raw materials and materials, banks providing short-term loans, and other counterparties) prefer commercial organizations with a high share of equity, with greater financial autonomy.

Financial stability ratio is determined by formula (7) and shows what part of the asset is financed from sustainable sources. The value of this indicator is considered normal if it exceeds 0.6.

Own + Long-term

liability capital

Kfu = –––––––––––––––––––––––––– (7)

The capitalization ratios that characterize the structure of long-term liabilities are logically supplemented by indicators of the second group, called the service ratios of external sources of financing, which make it possible to assess whether the organization is able to maintain the existing structure of sources of funds. Borrowing comes with the burden of fixed financial costs, which should at least be covered by current income. Fixed financial costs in terms of interest on loans and credits should be compared with earnings before interest and taxes. The corresponding indicator is called the interest rate. It is obvious that it must be greater than one, otherwise the enterprise cannot fully pay off current liabilities with external investors.

If in the denominator to the interest expenses add the expenses for financial lease, then the corresponding indicator is called the coverage ratio of fixed financial costs.

Currently, these indicators can only be calculated within the framework of internal analysis, because according to regulatory documents the main part of the interest for the loan is written off to the cost and is included as an integral part in the article "Cost of sales of goods, products, works, services" in Form No. 2 "Profit and Loss Statement".

1.3 Indicators of solvency and liquidity of the enterprise

Refers to the coefficients of financial stability of the enterprise.

The ratio of borrowed and own funds - what shows

Debt to equity ratio- shows how much borrowed funds per 1 rub. own funds.

Debt to equity ratio - formula

The general formula for calculating the coefficient:

Calculation formula according to the old balance sheet

Debt to equity ratio - value

The economic meaning of the ratio of borrowed and own funds is to determine how many units of borrowed financial resources account for a unit of sources of own funds.

The level of this coefficient above 1 indicates a potential risk of a lack of own funds, which may cause difficulties in obtaining new loans.

Was the page helpful?

More found about the ratio of borrowed and own funds

Standards for the financial stability of Russian enterprises: industry specifics
Methodical approach to the analysis of solvency Therefore, for the convenience of analysis, we will consider the inverse indicator - the ratio of equity and borrowed funds Ksootn - the ratio of equity and borrowed funds of the IC
Analysis of the capital structure and profitability of the leading Russian oil and gas companies Autonomy ratio n 1 n 2 0.67 0.66 -0.01 6 Ratio of own and borrowed funds n 3 n 1 0.5 0.52 0.02 7. Ratio
Assessment of the market and financial stability of the enterprise While maintaining the minimum financial stability of the organization, the ratio of borrowed and own funds should be limited from above by the value of the ratio of the cost of mobile funds
Peculiarities of financial analysis at agricultural enterprises Sosnovka -0.16 2.02 0.20 0.06 -0.004
Topical issues and modern experience in analyzing the financial condition of organizations - part 4 Also in the organization under study there is an excess of borrowed funds over its own, as evidenced by the ratio of own and borrowed funds The coefficient of financial independence confirms the previous conclusion that the organization
Working capital and financial condition of enterprises The minimum value of the coefficient is 0.5 The ratio of borrowed and own funds Kz with P4 P5 P3, 6
How to assess the financial stability of an enterprise? Financial stability standards for enterprises in the construction industry and agriculturea For the construction industry, the largest classifying ability is the ratio of borrowed and own funds of 77.1% and the coefficient of maneuverability of own working capital of 75.8% 4.
On the normative values of the coefficients in the formation of the rating assessment of the financial and economic condition of the enterprise Financial stability indicators &bullet ratio of borrowed and own funds Ксзс P1 P2 P3 P4 0.04 0.04 0.17 0.75
The financial stability of the organization and the criteria for the structure of liabilities
Financial analysis of the enterprise - part 5 The autonomy coefficient in 2005 increased compared to 2004 and exceeds the allowable norm of 0.5, which means that the company no longer needs borrowed funds.
Selection of risk factors for bankruptcy of an enterprise based on the principal component method
Classification of organizations by the level of their financial condition Autonomy coefficient 0.5 for a reduction in the indicator by 0.05 is deducted by 1 point The ratio of own and borrowed funds is less than 0 7 for a reduction in the indicator by 0.07 is deducted
Topical issues and modern experience in analyzing the financial condition of organizations - part 8 II The ratio of own and borrowed funds K4 Is one of the characteristics of the financial stability of an enterprise and
Financial analysis of the enterprise - part 4 The autonomy coefficient in 2003 decreased compared to 2002, and in 2004 it increased slightly compared to 2003, but still did not reach the allowable norm of 0.5, which means that the company needs borrowed funds According to the results of the obtained ratio coefficients borrowed and own funds 2002 2004
Assessment of the borrower's creditworthiness (methodology of Sberbank of Russia) K4 Ratio of own and borrowed funds 0.445 0.625 0.18 1 1 0.2 K5 Product profitability
Analysis of the financial condition of agricultural enterprises in the Altai Territory and ways of their financial recovery
Formation of the report on financial results as a function of production resources management Debt to equity ratio of the organization 1.601 1.218 1.035 -0.566 -0.183 Long-term borrowing ratio
A comparative analysis of Russian and foreign approaches to the analysis of the financial condition of an organization
Assessment of the effectiveness of the use of equity and borrowed capital of the enterprise Accounts payable and other liabilities ratio 0.049 0.073 0.064 5 Ratio of borrowed and own funds 2.002 1.794 1.855 6 Ratio of mobile and immobilized

The ratio of borrowed and own funds refers to indicators that analyze the financial stability of the company. It provides information on how much borrowed funds are accounted for by a unit of equity capital. Read how to calculate and analyze it.

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 who have a significant number of buyers of their goods, works, services. The more and more often the supplier company provides the organization with deferred payments for delivered goods 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 own assets. If the growth rate of borrowed capital is higher than the growth rate of equity capital, the situation in the structure is not 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 funds and other property attracted from the outside (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, or rather, to 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. Standard values coefficient

Indicator value	Characteristics of the financial condition of the organization
0>Coefficient SK/SK >0.5	sustainable 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 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
Accounts receivable
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.

The ratio of borrowed and own funds - refers to the coefficients of the financial stability of the enterprise. Shows how much borrowed funds per 1 UAH. own funds. It is also called gearing coefficient. It is equal to the ratio of the value of the company's liabilities to the value of its own funds.

Exceeding one in the value of the gearing coefficient means that for business, the borrowed capital of the organization is the main source of financing. High gearing indicates high risk.

The ratio of borrowed and own funds (Kz / s) is calculated by the formula:

Kz / s \u003d (P3 + P4) / P3

where P3 - long-term liabilities;

P4 - short-term liabilities;

P3 - capital and reserves.

Otherwise, it is (Total for section III Long-term liabilities + Total for section IV Short-term liabilities - deferred expenses - Deferred income) / (Total for section I Equity + Deferred income + Deferred expenses).

The more the coefficient exceeds 1, the greater the dependence of the enterprise on borrowed funds. The permissible level is often determined by the operating conditions of each enterprise, primarily by the speed of turnover of working capital. Therefore, it is additionally necessary to determine the rate of turnover of circulating assets and accounts receivable for the analyzed period. If accounts receivable turn around faster than working capital, which means a rather high intensity of cash flow to the enterprise, i.e. as a result - an increase in own funds. Therefore, with a high turnover of material working capital and an even higher turnover of accounts receivable, the ratio of own and borrowed funds can be much higher than 1.

The higher this ratio, the more loans the company has and the riskier the situation, which can eventually lead to bankruptcy. A high level of the coefficient also reflects the potential risk of a cash shortage in the organization.

Thus, the ratio of borrowed and own funds reflects the general condition of the enterprise, determines its financial stability, i.e. shows how much the company can perform

The interpretation of this indicator depends on many factors, in particular, such as: the average level of this coefficient in other industries; the company's access to additional debt sources of financing; the stability of the company's business. Recommended value - should not exceed one.

A high dependence on external loans can significantly worsen the position of the organization in the event of a slowdown in the pace of implementation, since the cost of paying interest on borrowed capital is included in the group of conditionally fixed, i.e. such costs that, other things being equal, do not decrease in proportion to the decrease in the volume of sales.

In addition, a high debt-to-equity ratio may make it difficult to obtain new loans at the average market rate. This coefficient plays essential role when deciding on the choice of funding sources.

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