leverage. Concept, essence, meaning. Production and financial leverage Production leverage normative value

The concept of operating leverage is closely related to the cost structure of a company. Operating lever or production leverage(leverage - leverage) is a mechanism for managing the company's profit, based on improving the ratio of fixed and variable costs.

With its help, you can plan a change in the organization's profit depending on the change in the volume of sales, as well as determine the break-even point. Necessary condition application of the operating leverage mechanism is the use of the marginal method based on the division of costs into fixed and variable. The lower the specific gravity fixed costs in the total cost of the enterprise, the more the amount of profit changes in relation to the rate of change in the company's revenue.

As we know, there are two types of costs in the enterprise: variables and constants. Their structure as a whole, and in particular the level of fixed costs, in total revenue enterprises or in revenue per unit of output can significantly affect the trend in profits or costs. This is due to the fact that each additional unit of production brings some additional profitability, which goes to cover fixed costs, and depending on the ratio of fixed and variable costs in the company's cost structure, the total increase in revenue from an additional unit of goods can be expressed in a significant sharp change in profit. As soon as the break-even point is reached, there is profit, which begins to grow faster than sales.

Production (operational) leverage is quantitatively characterized by the ratio between fixed and variable costs in their total amount and the value of the indicator "Profit before interest and taxes". Knowing the production lever, it is possible to predict the change in profit with a change in revenue. Distinguish price and natural price leverage.

Price operating (production) leverage

The price operating leverage (Рц) is calculated by the formula:

Rts = V / P
Where,
B - sales revenue;
P - profit from sales.

Given that V \u003d P + Zper + Zpost, the formula for calculating the price operating leverage can be written as:

Rts \u003d (P + Zper + Zpost) / P \u003d 1 + Zper / P + Zpost / P
Where,
Zper - variable costs;
Zpost - fixed costs.

Natural operating (production) leverage

Natural operating leverage (Рн) is calculated by the formula:

Rn \u003d (V-Zper) / P \u003d (P + Zpost) / P \u003d 1 + Zpost / P where,
B - sales revenue;
P - profit from sales;
Zper - variable costs;
Zpost - fixed costs.

Operating leverage is not measured as a percentage, as it is the ratio of marginal income to profit from sales. And since the marginal income, in addition to the profit from sales, also contains the amount of fixed costs, the operating leverage is always greater than one.

the value operating leverage can be considered an indicator of the riskiness of not only the enterprise itself, but also the type of business in which this enterprise is engaged, since the ratio of fixed and variable costs in overall structure costs is a reflection not only of the features this enterprise and its accounting policy, but also industry specifics of activity.

However, consider that a high proportion fixed costs in the cost structure of an enterprise is a negative factor, just as it is impossible to absolutize the value of marginal income. An increase in production leverage may indicate an increase in the production capacity of the enterprise, technical re-equipment, and an increase in labor productivity. The profit of an enterprise with a higher level of production leverage is more sensitive to changes in revenue. With a sharp drop in sales, such an enterprise can very quickly "fall" below the breakeven level. In other words, an enterprise with a higher level of production leverage is more risky.

Since operating leverage shows the dynamics of operating profit in response to changes in the company's revenue, and financial leverage characterizes the change in profit before tax after paying interest on loans and borrowings in response to changes in operating profit, the total leverage gives an idea of how much percentage change in profit before taxes after payment of interest with a change in revenue by 1%.

Thus, small operating lever can be strengthened by attracting borrowed capital. High operating leverage, on the other hand, can be offset by low financial leverage. With the help of these powerful tools - operational and financial leverage - an enterprise can achieve the desired return on invested capital at a controlled level of risk.

In conclusion, we list the tasks that are solved with the help of operating leverage (production leverage):

payment financial result in general for the organization, as well as by types of products, works or services on the basis of the “costs - volume - profit” scheme;

determination of the critical point of production and its use in the adoption management decisions and setting prices for works;

making decisions on additional orders (the answer to the question: will the additional order increase in fixed costs?

making a decision to stop the production of goods or the provision of services (if the price falls below the level of variable costs);

solving the problem of profit maximization due to the relative reduction of fixed costs;

use of profitability threshold in development production programs setting prices for goods, works or services.

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 of it: production, financial and production-financial. In the literal sense, leverage is understood as a lever, with a small effort of which it is possible to significantly change the results of production. financial activities enterprises.

To reveal its essence, we present a factorial model of net profit ( state of emergency) as the difference between revenue ( VR) and production costs ( IP) and financial nature IF):

state of emergency = VR-IP-IF (157)

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

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

The level of production leverage is calculated as the ratio of the growth rate of gross profit P% (before interest and taxes) to the growth rate of sales volume in natural or nominal units (VRP%).

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


Product price, thousand rubles
The cost of the product, thousand rubles.
Specific variable costs, thousand rubles
The amount of fixed costs, million rubles
Break-even sales volume, pcs.
Volume of production, pcs.:
option 1
option 2
Production increase, %
Revenue, million rubles:
option 1
option 2
Amount of expenses, million rubles:
option 1
option 2
Profit, million rubles:
option 1
option 2
Gross profit growth, %
Operating leverage ratio

The given data show that the enterprise with the highest ratio of fixed costs to variables has the highest value of the production leverage ratio. Each percentage increase in output under the current cost structure provides 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 profit of the third enterprise will decrease twice as fast as that of the first. Consequently, the third enterprise has a higher degree of production risk .

Graphically, this relationship can be depicted as follows (Fig. 11). On the abscissa axis, the volume of production is plotted on an appropriate scale, and on the ordinate axis, the increase in profit (in percent). The point of intersection with the axis (the so-called "dead point" or equilibrium point or break-even sales volume) shows how much each company needs to produce and sell products in order to reimburse 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. Under the current structure, the breakeven volume for the first enterprise is 2000, and for the second - 2273, for the third - 2500. The larger the value of this indicator and the slope of the graph to the x-axis, the higher the degree of production risk.

Rice. 11. Dependence of production leverage

from the cost structure of the enterprise

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

The relationship between profit and the ratio of equity and debt capital - this is financial leverage. According to V. V. Kovalev, financial leverage is a potential opportunity to influence profit by changing the volume and structure of equity and borrowed capital. Its level is measured by the ratio of net profit growth rates (  PE%) : to the growth rate of gross profit (  P%):

Cfl = PE% / 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 by 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 the leverage, depending on the prevailing conditions, you can influence the profit and return on equity.

The 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 and borrowings. minor change 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 spend comparative analysis financial risk with different capital structure. Let's calculate how the return on equity will change if the profit deviates from the baseline by 10%.


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

RAC range, %

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

P, million rubles

50 75 100 150 200

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

The abscissa shows the value of gross profit on the appropriate scale, and the ordinate shows the return on equity in percent. The point of intersection with the abscissa 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 also reflects the degree of financial risk . The degree of risk is also characterized by the steep slope of the graph 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 general risk associated with a possible lack of funds to recover production costs and financial costs of servicing external debt.

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

Kp.l \u003d 60 / 20 \u003d 3; Kf.l \u003d 75 / 60 \u003d 125; Kp-f.l \u003d 3 1.25 \u003d 3.75. Based on these data, we can conclude that with the current cost structure at the enterprise and the structure of capital sources, an increase in production by 1% will ensure an increase in gross profit by 3% and an increase in net profit by 3.75%. Each percentage increase in gross profit will result in a 1.25% increase in net profit. In the same proportion, these indicators will change with a decline in production. Using these data, it is possible to evaluate and predict the degree of production and financial investment risk.

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, we present the factorial model of net profit (NP) as the difference between revenue (VR) and production costs (IP) and financial nature (FI):

PE \u003d VR -IP - IF

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

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

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

Product price, thousand rubles 800 800 800

The cost of the product thousand rubles. 500 500 500

Specific variable costs, thousand rubles 300 250 200

The amount of fixed costs, million rubles 1000 1250 1500

Break-even sales volume, pcs. 2000 2273 2500

Volume of production, 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 expenses 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 given data show that the enterprise with the highest ratio of fixed costs to variables has the highest value of the production leverage ratio. Each percentage increase in output under the current cost structure provides 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, profit at the third enterprise will decrease 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 value depends on the amount of borrowed funds and their share in the total amount of invested capital.

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

Cf.l. = NP% / P%

It shows how many times the growth rate of net profit exceeds the growth rate of gross profit. This excess is ensured by the effect of financial leverage, one of the components of which is its leverage (the ratio of borrowed capital to equity). Increasing or decreasing the leverage, depending on the prevailing conditions, can affect the profit and return on equity. The 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 and borrowings. 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 the financial risk with different capital structure. Let's calculate how the return on equity will change if the profit deviates from the baseline by 10%.


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

RAC 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 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 the return on equity (RCC), the financial leverage ratio and net profit increases. This indicates an increase in the degree of financial risk of investing with a 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 cover production costs and the financial costs of servicing external debt.

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

To p.l. = 60 / 20 = 3; Kf.l \u003d 75 / 60 \u003d 1.25; Kp-f.l \u003d 3 * 1.25 \u003d 3.75

Based on this example, we can conclude that with the current structure of costs at the enterprise and the structure of capital sources, an increase in production by 1% will ensure an increase in gross profit by 3% and an increase in net profit by 3.75%. Each percentage increase in gross profit will result in a 1.25% increase in net profit. In the same proportion, these indicators will change with a decline in production. Using these data, it is possible to evaluate and predict the degree of production and financial investment risk.

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. possibility of cash financial resources meet your payment obligations on time.

Solvency analysis is necessary not only for the enterprise in order to assess and forecast financial activities, but also for external investors (banks). Before issuing a loan, the bank must verify the creditworthiness of the borrower. The same should be done by enterprises that want to enter into economic relations with each other. Especially need to know about financial opportunities partner, if there is a question about granting him a commercial loan or deferred payment.

Solvency assessment is carried out on the basis of the characteristics of the liquidity of current assets, i.e. the time it takes to turn them into cash. The concepts of solvency and liquidity are very close, but the second is more capacious. Solvency depends on the degree of liquidity of the balance sheet. At the same time, liquidity characterizes not only the current state of settlements, but also the prospects. The liquidity analysis of the balance sheet consists in comparing the funds for an asset, grouped by the degree of diminishing liquidity, for short-term liabilities for liabilities, which are grouped by the degree of urgency of their repayment. The most mobile part liquid funds are money and short-term financial investments, they belong to the first group. The second group includes finished products, goods shipped and receivables. The liquidity of current assets depends on the timeliness of the shipment of products, the execution of bank documents, the speed of payment documents in banks, the demand for products, their competitiveness, the solvency of buyers, forms of payment, etc. The third group includes transformations production stocks and work in progress into finished goods.

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

Current assets	Back to top

Cash
Short-term financial investments
Total for the first group
Finished products
Goods shipped
Receivables
Total for the second group
Productive reserves
Unfinished production
Future spending
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, the payment terms of which have already come. The second group includes debt that should be repaid in the near future. The third group includes long-term debt.

To determine the current solvency, it is necessary to compare the liquid funds of the first group with the payment obligations of the first group. Ideally, 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 settlements with creditors every day. Therefore, for an operational analysis of current solvency, daily monitoring of the receipt of funds from the sale of products, from the repayment of receivables and other receipts Money, as well as to control the fulfillment of payment obligations to suppliers and other creditors, draws up a payment calendar, in which, on the one hand, cash and expected means of payment are counted, 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, on the purchase of capital goods, documents on payroll settlements, on the issuance of advances to employees, bank 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 (section III of the liabilities side of the balance sheet). Its value is considered sufficient if it is above 0.25 - 0.30. If an enterprise in this moment can repay all his debts, then his 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. A 1:1 ratio usually satisfies. However, it may not be sufficient if a large proportion of liquid funds is accounts receivable, some of which is difficult to collect in a timely manner. In such cases, a ratio of 1.5:1 is required. The overall liquidity ratio is calculated by the ratio of the total amount of current assets, including inventories and work in progress (section III of the asset), to the total amount of short-term liabilities (section III of the liability). A coefficient of 1.5 - 2.0 usually satisfies.

Table 14. Liquidity indicators of the enterprise.

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: decrease in profit, level of profitability, turnover ratio, etc. For a more complete and objective assessment of liquidity, you can use the following factorial model:

Operating profit Balance sheet profit

K lik \u003d * \u003d X1 * X2

Balance sheet profit Short-term debt

where X1 is an indicator that characterizes the value of current assets per ruble of profit; X2 is an indicator that indicates the ability of the enterprise to repay its debts at the expense of the results of its activities. It characterizes the stability of finance. The higher its value, the better the financial condition of the enterprise. To calculate the influence of these factors, you can use the methods of chain setting or absolute differences.

When determining the solvency, it is desirable to consider the structure of the entire capital, including the main one. If shares, bills and other securities are quite significant, they are listed on the stock exchange, they can be sold with minimal losses. Securities provide 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 as the ratio of self-financed income to value added. It shows the extent to which the enterprise itself finances its 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 non-fulfillment of the plan for the production and sale of products, an increase in its cost; non-fulfillment of the profit plan and, as a result, a lack own sources self-financing enterprise high percentage of taxation. One of the reasons for the deterioration of solvency may be the misuse of working capital: the 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 get 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, strengthening the role of credit, it radically changes the approach to credit consumers. The borrower has also changed significantly. Expansion of independence., New forms of ownership - all this increases the risk of repayment of the loan and requires an assessment of creditworthiness when concluding loan agreements, resolving questions 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 the economic and market conditions, sustainability financial condition and others.

At the first stage bank credit analysis examines diagnostic information about the client. The composition of the information includes the accuracy of paying bills of 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 being studied.

Information on the composition and size of the assets (property) of the enterprise is used in determining the amount of credit that can be issued to the client. The study of the composition of assets will make it possible to establish the share of highly liquid funds that can be quickly realized and converted into money if necessary (goods shipped, receivables).

Second phase determining creditworthiness involves assessing the financial condition of the borrower and its sustainability. It takes into account not only solvency, but also a number of other indicators, the level of profitability of production, the turnover ratio of working capital, the effect of financial leverage, the availability of own working capital, the stability of performance production plans, the share of debt on loans in gross income, the ratio of the growth rate of gross output to the growth rate of bank loans, the amount and terms of overdue debt on 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 should not fall below 1.5. With a total liquidity ratio< 1 предприятие относится к первому классу, при 1 - 1,5 относится ко второму классу, а при >1.5 to the third class. If the company belongs to the first class, it means that the bank is dealing with an insolvent company. The bank can only lend to special conditions or at a high percentage. In terms of profitability, enterprises with an indicator of up to 25% belong to the first class, 25-30% to the second class, and 30% to the third class. And so on for each indicator. The assessment can also be carried out by experts by bank employees. If necessary, specialists may be involved as experts.

The calculated value of the degree of risk P for a particular enterprise is determined by the arithmetic mean simple: P = e Pi / n

The minimum value of the risk index, 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 a loan. If the bank is very risky, then it takes a higher percentage for the loan.

When assessing the creditworthiness of economic entities and the degree of risk, suppliers of financial and other resources can use multivariate comparative analysis various enterprises for a whole range of economic indicators.

The relationship between profit and the valuation of the costs of assets or funds incurred to obtain this profit is characterized by the indicator "leverage"(lever arm). This is a certain factor, a small change in which can lead to a significant change in a number of performance indicators.

Production (operating) leverage quantitatively characterized by the ratio between fixed and variable costs in their total amount and the variability of the indicator "profit before taxes". It is this indicator of profit that makes it possible to isolate and evaluate the impact of operating leverage on the financial performance of the company.

The level of production leverage is calculated by the formula:

where FС - fixed costs in monetary units;

VC - total variable costs in monetary units.

z - specific variable costs per unit of production;

Q is the sales volume in real terms.

The concept of operating leverage is related to the effect of operating leverage. It is due to the fact that any change in revenue from product sales leads to a greater change in profit, obtained due to the stabilization of fixed costs for the entire volume of production.

The effect of production leverage is calculated by the formula:

, where

P- the company's profit reporting period;

R- the company's revenue for the period;

R- selling price of a unit of production;

cont– the value of the contribution;

If the share of fixed costs is high, the company is said to have a high level of operating leverage. For such a company, even a slight change in production volumes can lead to a significant change in profits, since the company has to bear fixed costs in any case, whether products are produced or not. Thus, the variability in earnings before interest and taxes due to changes in operating leverage quantifies production risk. The higher the level of operating leverage, the higher the company's production risk.

However, it cannot be considered that a high share of fixed costs in the cost structure of an enterprise is a negative factor. An increase in production leverage may indicate an increase in the production capacity of an enterprise, technical re-equipment, an increase in labor productivity, as well as the implementation of research and development projects. All these factors, which are undoubtedly positive, are manifested in an increase in fixed costs and lead to an increase in the effect of production leverage.

Production leverage effect manifests itself in the fact that with an increase in the company's revenue, the profit also changes, and the higher the level of production leverage, the stronger this effect,

An analysis of the fixed and variable costs of an enterprise makes it possible to identify the level of risk, which is a necessary stage in planning and making managerial decisions.

So, the level of production leverage that has developed in the company is a characteristic of the potential opportunity to influence profit before interest and taxes by changing the cost structure and output volume.

Financial leverage

Quantitatively, this characteristic is measured by the ratio between borrowed and own capital; the level of financial leverage directly proportionally affects the degree of financial risk of the company and the rate of return required by shareholders. The higher the amount of interest payable, which, by the way, is a permanent obligatory expense, the lower the net profit. Thus, the higher the level of financial leverage, the higher the financial risk of the company.

The level of financial leverage of a company is calculated by the formula:

where ZK- borrowed capital;

SC- equity.

A company that has a significant share of debt capital is called a company with a high level of financial leverage, or a financially dependent company. ; a company that finances its activities only from its own funds is called financially independent .

The costs of servicing loans are fixed, since they are obligatory for the enterprise to pay, regardless of the level of production and sales of products. It is obvious that if the market situation develops unsuccessfully and the company's revenue turns out to be low, then an enterprise with a higher level of financial leverage (and, accordingly, with high financial costs) will lose financial stability much earlier and become unprofitable than an enterprise that preferred to finance its activities from its own resources. sources and thus retained a low level of financial dependence on external creditors. Therefore, a high level of financial leverage is a reflection of the high risk inherent in this enterprise.

So, the level of financial leverage that has developed in the company is a characteristic of the potential opportunity to influence net profit commercial organization by changing the volume and structure of long-term liabilities.

Leverage is the management of assets and liabilities of an enterprise for profit, deleveraging is the process of reducing leverage

Concept and functions of production and financial leverage, financial leverage ratio, leverage formula, concept and functions of deleverage

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Leverage is the definition

Leverage is the process of managing the assets and liabilities of an enterprise, organization or institution in order to make a profit. In a literal sense, leverage is a lever, with a small effort of which you can significantly change the results of the production and financial activities of an enterprise, the ratio of capital investments in fixed income securities (bonds, preferred shares) and investments in securities with non-fixed income (ordinary shares).

Leverage is the ratio or balance between capital invested in fixed income securities (they include preferred shares, bonds, etc.) and capital invested in ordinary shares.

Leverage is the ratio of the fixed capital of an organization, an enterprise to borrowed, attracted funds. Leverage in financial analysis is interpreted as a factor, a small change in which can lead to a significant change in the resulting indicators. Any enterprise is a source of financial risk. In this case, the risk arises on the basis of factors of an industrial and financial nature that form the costs and income of the enterprise. Production and financial costs are not interchangeable, however, their structure can be controlled.

Leverage (from English leverage - leverage) is use of debt financing by attracting loans. The term "leverage" is used in several meanings. In the conditions of market relations, any commercial enterprise plans its activities in such a way as to get the maximum profit from its activities. Therefore, one of the urgent tasks modern stage is the mastery of executives and financial managers modern methods effective management formation of profit in the process of production, investment and financial activities of the enterprise.

Leverage (translated from English - lever) is barbarism, i.e. direct borrowing of the American term "leverage", already widely used in domestic special literature; we note that in the UK the term “Gearing” is used for the same purpose. In some monographs, the term “lever” is used, which should hardly be recognized as successful even in a linguistic sense, since in a literal translation in English the lever is “lever”, but not “ 1 everge".

Leverage is the process of managing the assets and liabilities of an enterprise aimed at increasing (increasing) profits. The main effective indicator is the net profit of the company, which depends on many factors, and therefore various factor expansions of its change are possible. In particular, it can be represented as the difference between revenue and expenses of two main types: production nature and financial nature. They are not interchangeable, but the amount and share of each of these types of costs can be controlled. Such a representation of the factor structure of profit is extremely important in the context of market economy and the freedom to finance a commercial organization with loans from commercial banks, which vary widely in the interest rates they offer.

Leverage is attached to financial sector is interpreted as a certain factor, a small change in which can lead to a significant change in the resulting indicators, in financial management this term is used to characterize a relationship showing how and to what extent an increase or decrease in the share of one or another group of conditionally fixed costs (costs) in total amount running costs(costs) affects the dynamics of the income of the owners of the firm.

Leverage is double-edged sword: it increases the income of the owners, while increasing their financial risks. Identification of the level of leverage is a characteristic of the potential danger of not achieving target values profits due to the need to incur significant semi-fixed costs that are not commensurate with the generated income. The specificity of semi-fixed costs is in their long-term and certainty for the future. This means that leverage is a long-term factor; in addition, a slight change in the factor itself or the conditions in which it operates can lead to a significant change in a number of performance indicators. , 30% at your own expense, 70% at the expense of the bank).

Deleverage is the process of reducing leverage, i.e. level of debt. It is believed that deleveraging is the main reason for the long-term (decade) cyclical downturn in economic activity.

High leverage pressure

All companies use financial leverage to some extent. The whole question is to what extent it is advisable to increase the loan, what is the reasonable ratio between own and borrowed capital. It is clear that borrowing too much increases risk, which in turn leads to higher interest rates. The basic rule of leverage is that if an enterprise borrows at an interest rate less than the return on assets, the return on capital will increase; if the company borrows money at a rate of interest higher than the return on assets, the return on equity will fall. Leverage is a very risky business for those enterprises whose activities are cyclical in nature (they include, for example, construction and the automotive industry). At these enterprises, sales volume fluctuates from year to year. As a result, several consecutive years of low sales can lead heavily leveraged businesses to bankruptcy.

Over the past few years, in the wake of the consumer boom, retail companies, construction and a number of other sectors of the domestic economy have been actively developing by attracting relatively cheap credit resources. There was a classic leverage, which in a growing economy allowed companies to achieve growth in financial performance at the expense of borrowed funds. However, as a result of the aggravation of the global financial crisis, banks began to reduce lending volumes and increase interest rates on credit resources.

Thus, in a crisis period, liquidity collapses, and the flywheel begins to spin in reverse side– there is a process of deleveraging, when everyone has to “unload” balances. A sharp decline in the availability of loans leads to a drop in demand, the sales markets themselves are shrinking, the use of production capacities is decreasing and workers are being laid off, which causes a new round of demand reduction, investment programs are suspended, plans for expanding production are postponed.

The global credit expansion of the last 20 years, accompanied by the growth of margin positions in the global financial system is ending before our eyes, and it is happening quite dramatically: a liquidity crisis, a crisis of confidence, systemic risks, numerous defaults, global deleveraging. According to analysts, the most vulnerable in terms of creditworthiness in Russia are companies operating in development, agricultural production, retail, air transportation, light and Food Industry.

To mitigate the impact of the crisis on various sectors Russian economy, the government and the Central Bank of Russia have developed a number of measures aimed at supporting the banking sector and a number of other sectors of the economy. Similar measures to stabilize the situation on financial markets and supporting the economy have been adopted by the governments and central banks of many countries, both developed and developing.

At the moment, it is still too early to make predictions at what level of "cash injection" the suspension of the global deleveraging process will occur. After all, the bankruptcy of even one large corporation automatically generates default swap liabilities of up to several hundred billion dollars (default swaps are financial instruments used to speculate on a company's ability to pay its debt.

If the company is unable to pay the debts, the buyer is paid the nominal value of the valuable papers. A sharp drop in world stock markets leads to a significant depreciation of collateral in the form of shares or bonds. It is logical that creditors in this situation require additional collateral from companies, which often find it difficult to do something and offer something in the face of liquidity shortage. And only the saturation of the market with monetary resources can stop the current process of deleveraging in the global financial system, which, in general, the world's central banks and governments have been doing over the past month.

Leverage in the financial sector

The main performance indicator is the company's net profit, which depends on many factors, and therefore various factor expansions of its change are possible. In particular, it can be represented as the difference between revenue and expenses of two main types: production nature and financial nature. They are not interchangeable, but the amount and share of each of these types of costs can be controlled. Such a presentation of the factor structure of profit is extremely important in a market economy and freedom in financing a commercial organization with loans from commercial banks, which differ significantly in interest rates offered by them.

From position financial management the activities of a commercial organization net profit depends; firstly, on how rationally the financial resources provided to the enterprise are used, i.e. what they are invested in, and, secondly, on the structure of sources of funds. The first point is reflected in the volume and structure of fixed and working capital and the efficiency of their use. The main elements of the cost of production are variable and fixed costs, and the ratio 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 the amount of profit. Investing in fixed assets is accompanied by an increase in fixed costs and, at least in theory, a decrease in variable costs.

However, the dependence is non-linear, so finding the optimal combination of fixed and variable costs is not easy. It is this relationship that is characterized by the category of production, or operational, leverage, the level of which, in addition, determines the amount of production risk associated with the company.

risk

Leverage in the application to the financial sector is interpreted as a certain factor, a small change in which can lead to a significant change in the resulting indicators. In financial management, the following types of leverage are distinguished:

Production (operational);

Financial.

Production leverage (from English leverage - leverage) is

Production leverage (English leverage - leverage) is a mechanism for managing the profit of an enterprise based on optimizing the ratio of fixed and variable costs. With its help, you can predict the change in the profit of the enterprise depending on the change in sales volume, as well as determine the break-even point.

A necessary condition for the application of the mechanism of production leverage is the use of the marginal method based on the division of the company's costs into fixed and variable. The lower the share of fixed costs in the total cost of the enterprise, the more the amount of profit changes in relation to the rate of change in the company's revenue.

Production leverage is determined using one of two formulas:

The value found using formula (1) production leverage effect further serves to predict changes

earnings depending on the change in the company's revenue. To do this, use the following formula:

For clarity, consider the effect of production leverage using an example:

Using the mechanism of industrial leverage, we predict the change in the profit of the enterprise depending on the change in revenue, and also determine the break-even point. For our example, the production leverage effect is 2.78 units (12,5000 / 45,000). This means that with a decrease in the company's revenue by 1%, the profit will decrease by 2.78%, and with a decrease in revenue by 36%, we will reach the profitability threshold, i.e. profit will be zero. Let's assume that the revenue will be reduced by 10% and will amount to 337,500 rubles. (375,000 - 375,000 * 10 / 100). Under these conditions, the profit of the enterprise will be reduced by 27.8% and amount to 32,490 rubles. (45,000 - 45,000 * 27.8 / 100).

Production leverage is an indicator that helps managers choose the optimal strategy for the enterprise in managing costs and profits. The amount of production leverage may change under the influence of: price and sales volume; variable and fixed costs; combinations of these factors. Let's consider the influence of each factor on the effect of production leverage based on the above example. An increase in the selling price by 10% (up to 825 rubles per unit) will lead to an increase in sales up to 412,500 rubles, marginal income - up to 162,500 rubles. (412,500 - 250,000) and profits - up to 82,500 rubles. (162,500 - 80,000). At the same time, the marginal income per unit of product will also increase from 250 (125,000 rubles / 500 pieces) to 325 rubles. (162,500 rubles / 500 pcs.). Under these conditions, a smaller volume of sales will be required to cover fixed costs: the break-even point will be 246 units. (80,000 rubles / 325 rubles), and the marginal margin of safety of the enterprise will increase to 254 units. (500 pieces - 246 pieces), or by 50.8%. As a result, the company can receive additional profit in the amount of 37,500 rubles. (82,500 - 45,000). At the same time, the effect of production leverage will decrease from 2.78 to 1.97 units (162,500 / 82,500).

Reducing variable costs by 10% (from 250,000 rubles to 225,000 rubles) will lead to an increase in marginal income up to 150,000 rubles. (375,000 - 225,000) and profits - up to 75,000 rubles. (150,000 - 80,000). As a result of this, the break-even point (profitability threshold) will increase to 200,000 rubles. , which in kind will be 400 pcs. (200,000: 500). As a result, the marginal margin of safety of the enterprise will be 175,000 rubles. (375,000 - 200,000), or 233 pcs. (175,000 rubles / 750 rubles). Under these conditions, the effect of production leverage at the enterprise will decrease to 2 units (150,000 / 75,000). With a decrease in fixed costs by 10% (from 80,000 rubles to 72,000 rubles), the profit of the enterprise will increase to 53,000 rubles. (375,000 - 250,000 - 72,000), or 17.8%. Under these conditions, the break-even point in monetary terms will be 216,000 rubles. , and in kind - 288 pcs. (216,000 / 750). At the same time, the marginal margin of safety of the enterprise will correspond to 159,000 rubles. (375,000 - 216,000), or 212 pcs. (159,000 / 750). As a result of a 10% reduction in fixed costs, the effect of production leverage will be 2.36 units (125,000 / 53,000) and, compared to the initial level, will decrease by 0.42 units (2.78 - 2.36).

The analysis of the above calculations allows us to conclude that the change in the effect of production leverage is based on the change in the share of fixed costs in the total cost of the enterprise. At the same time, it must be borne in mind that the sensitivity of profit to changes in sales volume can be ambiguous in enterprises with a different ratio of fixed and variable costs. The lower the share of fixed costs in the total cost of the enterprise, the more the amount of profit changes in relation to the rate of change in the company's revenue.

It should be noted that in specific situations the manifestation of the mechanism of production leverage may have features that must be taken into account in the process of its use. These features are as follows: the positive impact of production leverage begins to appear only after the company has overcome the break-even point of its activities. In order for the positive effect of production leverage to begin to manifest itself, the enterprise must first receive a sufficient marginal income to cover its fixed costs.

This is due to the fact that the company is obliged to recover its fixed costs regardless of the specific volume of sales, therefore, the higher the amount of fixed costs, the later, other things being equal, it will reach the break-even point of its activities. Therefore, until the enterprise has ensured the break-even of its activities, a high level of fixed costs will be an additional “burden” on the way to reaching the break-even point.

As sales increase further and further away from the break-even point, the effect of production leverage begins to decline. Each subsequent percentage increase in sales will lead to an increasing rate of increase in the amount of profit. The mechanism of industrial leverage has the opposite direction: with any decrease in sales, the size of the enterprise's profit will decrease even more. There is an inverse relationship between the production leverage and the profit of the enterprise - the higher the profit of the enterprise, the lower the effect of the production leverage, and vice versa. This allows us to conclude that production leverage is a tool that equalizes the ratio of the level of profitability and the level of risk in the process of carrying out production activities.

The effect of production leverage is manifested only in the short period. This is determined by the fact that the fixed costs of the enterprise remain unchanged only for a short period of time. As soon as the next jump in the amount of fixed costs occurs in the process of increasing sales, the enterprise needs to overcome a new break-even point or adapt its production activities to it. In other words, after such a jump, the effect of production leverage manifests itself in new economic conditions in a new way.

With unfavorable commodity market conditions that determine a possible decrease in sales, as well as in the early stages of the life cycle of an enterprise, when it has not yet overcome the break-even point, it is necessary to take measures to reduce the fixed costs of the enterprise. And vice versa, with a favorable commodity market situation and the presence of a certain margin of safety, the requirements for the implementation of a regime of saving fixed costs can be significantly weakened. During such periods, an enterprise can significantly expand the volume of real investments by reconstructing and modernizing fixed production assets.

When managing fixed costs, it must be borne in mind that their high level largely depends on the industry-specific characteristics of the activity that determine the different level of capital intensity of manufactured products, the differentiation of the level of mechanization and automation of labor. In addition, it should be noted that fixed costs are less amenable to rapid change, so enterprises with a high value of production leverage lose flexibility in managing their costs.

However, despite these objective constraints, each enterprise has enough opportunities to reduce, if necessary, the amount and proportion of fixed costs. These reserves include: a significant reduction in overhead costs (management costs); sale of part of unused equipment and intangible assets in order to reduce the flow of depreciation; widespread use of short-term forms of leasing machinery and equipment instead of acquiring them as property; reduction in the consumption of some utilities and etc.

When managing variable costs, the main guideline should be to ensure their constant readiness, since there is a direct relationship between the amount of these costs and the volume of production and sales. Providing these savings before the enterprise overcomes the break-even point leads to an increase in marginal income, which allows you to overcome this point faster. After breaking the break-even point, the amount of savings in variable costs will provide a direct increase in the profit of the enterprise. The main reserves for saving variable costs include: reducing the number of employees in the main and auxiliary industries by ensuring the growth of their labor productivity; reduction in the size of stocks of raw materials, materials and finished products during periods of unfavorable commodity market conditions; ensuring favorable conditions for the supply of raw materials and materials for the enterprise, etc. The use of the production leverage mechanism, targeted management of fixed and variable costs, and the rapid change in their ratio under changing business conditions will increase the potential for generating profits for the enterprise.

The concept of operating leverage is closely related to the cost structure of a company. Operating leverage or production leverage (leverage - leverage) is a company profit management mechanism based on improving the ratio of fixed and variable costs. It can be used to plan a change in the organization's profit depending on changes in sales volume, as well as determine the break-even point. A necessary condition for the application of the mechanism of operating leverage is the use of the marginal method based on the division of costs into fixed and variable. The lower the share of fixed costs in the total cost of the enterprise, the more the amount of profit changes in relation to the rate of change in the company's revenue.

As already mentioned, there are two types of costs in the enterprise: variable and fixed. Their structure as a whole, and in particular the level of fixed costs, in the total revenue of an enterprise or in revenue per unit of production can significantly affect the trend in profits or costs. This is due to the fact that each additional unit of production brings some additional profitability, which goes to cover fixed costs, and depending on the ratio of fixed and variable costs in the company's cost structure, the total increase in revenue from an additional unit of goods can be expressed in a significant sharp change in profit. As soon as the break-even point is reached, there is profit, which begins to grow faster than sales.

The operating lever is a tool for defining and analyzing this dependence. In other words, it is designed to establish the impact of profit on the change in sales volume. The essence of its action lies in the fact that with the growth of revenue, there is a higher growth rate of profit, but this higher growth rate is limited by the ratio of fixed and variable costs. The lower the share of fixed costs, the less this limitation will be. Production (operating) leverage is quantitatively characterized by the ratio between fixed and variable costs in their total amount and the value of the indicator "Profit before interest and taxes". Knowing the production lever, it is possible to predict the change in profit with a change in revenue. There are price and natural price leverage. Price operating leverage (Pc) is calculated by the formula:

Natural operating leverage is calculated by the formula:

Comparing the formulas for operating leverage in price and physical terms, one can see that Рн has less influence. This is explained by the fact that with an increase in natural volumes, variable costs simultaneously grow, and with a decrease, they decrease, which leads to a slower increase / decrease in profits. The value of operating leverage can be considered an indicator of the riskiness of not only the enterprise itself, but also the type of business that the enterprise is engaged, since the ratio of fixed and variable costs in the overall cost structure is a reflection not only of the characteristics of this enterprise and its accounting policy, but also of industry-specific characteristics of activity.

However, it is impossible to consider that a high share of fixed costs in the cost structure of an enterprise is a negative factor, as well as to absolutize the value of marginal income. An increase in production leverage may indicate an increase in the production capacity of the enterprise, technical re-equipment, and an increase in labor productivity. The profit of an enterprise with a higher level of production leverage is more sensitive to changes in revenue.

With a sharp drop in sales, such an enterprise can very quickly "fall" below the breakeven level. In other words, an enterprise with a higher level of production leverage is more risky. Since operating leverage shows the dynamics of operating profit in response to changes in the company's revenue, and financial leverage characterizes the change in profit before tax after paying interest on loans and borrowings in response to changes in operating profit, total leverage gives an idea of how much percentage change in profit before taxes after interest payment for a change in revenue by 1%.

Thus, a small operating leverage can be increased by raising debt capital. High operating leverage, on the other hand, can be offset by low financial leverage. With the help of these powerful tools - operational and financial leverage - an enterprise can achieve the desired return on invested capital at a controlled level of risk.

In conclusion, we list the tasks that are solved with the help of the operating lever: calculation of the financial result for the whole organization, as well as for types of products, works or services based on the “costs - volume - profit” scheme; determination of the critical point of production and its use when making management decisions and setting prices for work; making decisions on additional orders (an answer to the question: will an additional order lead to an increase in fixed costs?); making a decision to stop the production of goods or services (if the price falls below the level of variable costs); decision tasks of profit maximization due to the relative reduction of fixed costs; the use of the profitability threshold in the development of production programs, setting prices for goods, works or services

A prosperous enterprise is an enterprise that receives a steady profit from its activities. This task can be implemented on a stable basis if the enterprise constantly studies the demand in the market, has a clear pricing policy, and also applies effective methods of planning, accounting, analysis, control and management of production volumes, product quality and costs. All these requirements are fully met by management accounting, the purpose of which is to provide information to enterprise managers responsible for specific areas and activities.

One of effective methods management accounting is a technique for analyzing the ratio “costs - volume - profit” (“Cost - Volume - Profit” or “CVP analysis”), which allows you to determine the break-even point (profitability threshold), i.e. the point at which the company's income fully covers its expenses. This analysis would not be possible without such important indicator as a production leverage (leverage in literal translation is a lever). With its help, you can predict the change in the result (profit or loss) depending on the change in the company's revenue, as well as determine the break-even point (profitability threshold).

A necessary condition for the application of the mechanism of production leverage is the use of the marginal method based on the division of the company's costs into fixed and variable. As you know, fixed costs do not depend on the volume of production, and variables change with an increase (decrease) in output and sales. The lower the share of fixed costs in the total cost of the enterprise, the more the amount of profit changes in relation to the rate of change in the company's revenue.

is determined using the following formula:

The value of the effect of production leverage found using formula 1 is further used to predict the change in profit depending on the change in the company's revenue. To do this, use the following formula:

For clarity, consider the effect of production leverage on the following example:

Using we will predict the change in the profit of the enterprise depending on the change in revenue, and also determine the break-even point. For our example, the effect of production leverage is 3.5 units (1400:400). This means that with a decrease in the company's revenue by 1%, the profit will decrease by 3.5%, and with a decrease in revenue by 28.57%, we will reach the profitability threshold, i.e. profit will be zero. Let's assume that the revenue will be reduced by 10% and will amount to 4500 thousand rubles. (5000 - 5000 * 10: 100). Under these conditions, the company's profit will be reduced by 35% and amount to 260 thousand rubles. (400 - 400 ґ 35: 100). Production leverage is an indicator that helps managers choose the optimal strategy for the enterprise in managing costs and profits. The amount of production leverage can change under the influence of: price and sales volume; variable and fixed costs; a combination of any of the above factors.

Consider the impact of each factor on the effect of production leverage based on the above example. An increase in the selling price by 10% (up to 2750 rubles per unit) will lead to an increase in sales up to 5500 thousand rubles, marginal income - up to 1900 thousand rubles. (5500 - 3600) and profits up to 900 thousand rubles. (1900 - 1000). At the same time, the marginal income per unit of goods will also increase from 700 rubles. (1400 thousand rubles: 2000 units) up to 950 rubles. (1900 thousand rubles: 2000 units). Under these conditions, a smaller volume of sales will be required to cover fixed costs: the break-even point is 1053 units. (1000 thousand rubles: 770 rubles), and the safety margin of the enterprise will increase to 947 units. (2000 - 1053) or 47%. As a result, the company can receive additional profit in the amount of 500 thousand rubles. (900 - 400). At the same time, the effect of production leverage will decrease from 3.5 to 2.11 units (1900: 900).

Reducing variable costs by 10% (from 3,600 thousand rubles to 3,240 thousand rubles) will lead to an increase in marginal income to 1,760 thousand rubles. (5000 - 3240) and profits up to 760 thousand rubles. (1760 - 1000). As a result, the break-even point (profitability threshold) will increase to 2840.9 thousand rubles. , which in kind will be 1136 pcs. (2840.9: 2.5). As a result, the safety margin of the enterprise will amount to 2159.1 thousand rubles. (5000 - 2840.9) or 864 pcs. (2159.1 thousand rubles: 2.5 thousand rubles). Under these conditions, the effect of production leverage at the enterprise will decrease to 2.3 units (1760: 760).

With a decrease in fixed costs by 10% (from 1000 thousand rubles to 900 thousand rubles), the profit of the enterprise will increase to 500 thousand rubles. (5000 - 3600 - 900) or 25%. Under these conditions, the break-even point in monetary terms will be 3214.3 thousand rubles. , and in physical terms - 1286 pcs. (3214.3: 2.5). At the same time, the safety margin of the enterprise will correspond to 1785.7 thousand rubles. (5000 - 3214.3) or 714 pcs. (1785.7: 2.5). As a result, as a result of a 10% reduction in fixed costs, the effect of production leverage will be 2.8 units (1400: 500) and will decrease by 0.7 units (3.5 - 2.8) compared to the initial level.

The analysis of the above calculations allows us to conclude that the change in the effect of production leverage is based on the change in the share of fixed costs in the total cost of the enterprise. At the same time, it must be borne in mind that the sensitivity of profit to changes in sales volume can be ambiguous in enterprises with a different ratio of fixed and variable costs. The lower the share of fixed costs in the total cost of the enterprise, the more the profit value changes in relation to the rate of change in the enterprise's revenue. It should be noted that in specific situations, the manifestation of the mechanism of production leverage has a number of features that must be taken into account in the process of its use.

These features are as follows: 1. The positive impact of production leverage begins to manifest itself only after the company has overcome the break-even point of its activity. In order for the positive effect of production leverage to begin to manifest itself, the company must first receive a sufficient amount of marginal income to cover its fixed costs. This is due to the fact that the company is obliged to recover its fixed costs regardless of the specific volume of sales, therefore, the higher the amount of fixed costs, the later, other things being equal, it will reach the break-even point of its activities. In this regard, until the enterprise has ensured the break-even of its activities, a high level of fixed costs will be an additional “burden” on the way to reaching the break-even point.

2. As sales increase further and move away from the breakeven point, the effect of production leverage begins to decline. Each subsequent percentage increase in sales will lead to an increasing rate of increase in the amount of profit. 3. The mechanism of industrial leverage also has the opposite direction - with any decrease in sales, the size of the enterprise's profit will decrease even more.

4. There is an inverse relationship between the production leverage and the profit of the enterprise. The higher the profit of the enterprise, the lower the effect of production leverage and vice versa. This allows us to conclude that production leverage is a tool that equalizes the ratio of the level of profitability and the level of risk in the process of carrying out production activities.

5. The effect of production leverage appears only in a short period. This is determined by the fact that the fixed costs of the enterprise remain unchanged only for a short period of time. As soon as the next jump in the amount of fixed costs occurs in the process of increasing sales, the enterprise needs to overcome a new break-even point or adapt its production activities to it. In other words, after such a jump, the effect of production leverage manifests itself in new economic conditions in a new way.

Understanding the mechanism of manifestation of production leverage allows you to purposefully manage the ratio of fixed and variable costs in order to increase the efficiency of production and economic activities under various trends in the commodity market and the stage of the life cycle of an enterprise. life cycle of the enterprise, when they have not yet overcome the break-even point, it is necessary to take measures to reduce the fixed costs of the enterprise.

And vice versa, with a favorable commodity market situation and the presence of a certain margin of safety, the requirements for the implementation of a regime of saving fixed costs can be significantly weakened. During such periods, an enterprise can significantly expand the volume of real investments by reconstructing and modernizing fixed production assets. When managing fixed costs, it should be borne in mind that their high level is largely determined by industry-specific characteristics of activity that determine a different level of capital intensity of manufactured products, differentiation of the level of mechanization and labor automation. In addition, it should be noted that fixed costs are less amenable to rapid change, so enterprises with a high value of production leverage lose flexibility in managing their costs.

However, despite these objective constraints, each enterprise has enough opportunities to reduce, if necessary, the amount and proportion of fixed costs. Such reserves include: a significant reduction in overhead costs (management costs) in case of unfavorable commodity market conditions; sale of part of unused equipment and intangible assets in order to reduce the flow of depreciation charges; widespread use of short-term forms of leasing machinery and equipment instead of acquiring them as property; reduction in the volume of a number of consumed utilities and others.

When managing variable costs, the main guideline should be to ensure their constant savings, since there is a direct relationship between the amount of these costs and the volume of production and sales. Providing these savings before the company overcomes the break-even point leads to an increase in marginal income, which allows you to quickly overcome this point. After breaking the break-even point, the amount of savings in variable costs will provide a direct increase in the profit of the enterprise. The main reserves for saving variable costs include: reducing the number of employees in the main and auxiliary industries by ensuring the growth of their labor productivity; reduction in the size of stocks of raw materials, materials and finished products during periods of unfavorable commodity market conditions; provision of favorable conditions for the supply of raw materials and materials for the enterprise, and others.

The use of the mechanism of production leverage, targeted management of fixed and variable costs, the rapid change in their ratio under changing business conditions will increase the potential for generating profits for the enterprise.

Financial leverage

Financial leverage is the ratio between bonds and preferred shares on the one hand and ordinary shares on the other. It is an indicator of financial stability joint-stock company. On the other hand, it is the use of debt obligations (borrowed funds) in order to increase the expected profit by share capital. In the third interpretation, financial leverage is a potential opportunity to influence the net profit of an enterprise by changing the volume and structure of long-term liabilities: by varying the ratio of own and borrowed funds to optimize interest payments. The question of the expediency of using borrowed capital is connected with the action of financial leverage: an increase in the share of borrowed funds can increase the return on equity.

In other words, it characterizes the relationship between the change in net profit and the change in profit before interest and taxes. In financial management, there are two concepts for calculating and determining the effect of financial leverage. These concepts originated in different schools of financial management.

First concept: Western European concept. The effect of financial leverage is interpreted as an increment to the return on equity, obtained through the use of borrowed capital. Consider the following example:

Conclusion: enterprises 2 and 3 use equity more efficiently; this is evidenced by the indicator of net return on equity (NRSK), and borrowed capital (LC) is used with a greater return than the price of its attraction. Such a strategy for attracting borrowed capital is called a capital speculation strategy. The indicator of profit before interest and taxes is a basic indicator of financial management, which characterizes the income generated by the enterprise on attracted capital. Otherwise, it is called the net result of the exploitation of investments (NREI)

Consider the impact of financial leverage on the net return on equity for an enterprise using both debt capital and equity, and derive a formula that reflects the impact of financial leverage on the economic return on assets (ERA):

So, the effect of financial leverage (EFL) according to 1 calculation concept is determined by:

The second concept: The American concept of calculating financial leverage. This concept considers the effect in the form of an increment in net income (NP) per 1 ordinary share per increment in the net result of the operation of investments (NREI), that is, this effect expresses the increase in net profit obtained by incrementing NREI :

From the above it follows:

This formula shows the degree of financial risk arising from the use of LC, therefore, the greater the impact of financial leverage, the greater the financial risk associated with this enterprise: a) for a banker - the risk of non-repayment of the loan increases, b) for an investor - the risk increases falling dividend and share price. the first concept of calculating the effect allows you to determine the safe amount and terms of the loan, the second concept allows you to determine the degree of financial risk, and is used to calculate the total risk of the enterprise.

Consider two options for financing an enterprise - from its own funds and using its own funds and borrowed capital. Let's assume that the level of return on assets (RA) is 20%. In the second option, due to the use of borrowed funds, the effect of financial leverage (leverage) was obtained - the return on equity increased.

The decision to use borrowed funds in one proportion or another is the subject of financial leverage. The ability to manage sources of financing to increase the return on equity is measured by the “level of financial leverage” indicator. The level of financial leverage is the ratio of the growth rate of net profit to the growth rate of gross income, characterizes sensitivity, the ability to manage net profit

The level of financial leverage increases with an increase in the share of borrowed capital in the asset structure. But, on the other hand, a large financial "lever" means a high risk of loss of financial stability: With an increase in the level of financial leverage, leverage risk increases. Leverage (financial risk) is the ability to become dependent on loans and borrowings in case of insufficient funds for settlements on loans, this is the risk of loss of liquidity / financial stability

the formula for calculating the effect of financial leverage is also applied:

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

Snp - income tax rate, expressed as a decimal fraction; КВРа - coefficient of gross profitability of assets (the ratio of gross profit to the average value of assets),%;

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

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

SC - the average amount of equity capital of the enterprise.

Let us consider the mechanism of formation of the effect of financial leverage using the following example (table):

Table (rub.)

Formation of the effect of financial leverage

The analysis of the given data allows us to see that there is no effect of financial leverage for enterprise “A”, since it does not use borrowed capital in its business activities. For enterprise “B”, the effect of financial leverage is:

Accordingly, for the enterprise "B" this figure is:

From the results of the calculations it can be seen that the higher the share of borrowed funds in the total amount of capital used by the enterprise, the greater the level of profit it receives on equity. At the same time, it is necessary to pay attention to the dependence of the effect of financial leverage on the ratio of the return on assets and the level of interest for the use of borrowed capital. If the gross return on assets is greater than the level of interest on a loan, then the effect of financial leverage is positive. If these indicators are equal, the effect of financial leverage is equal to zero.

If the level of interest on a loan exceeds the gross return on assets, the effect of financial leverage turns out to be negative. The above formula for calculating the effect of financial leverage allows us to distinguish three main components in it: 1. Financial leverage tax corrector (1 - T&C), which shows the extent to which the effect of financial leverage is manifested due to different levels of profit taxation.2. Financial leverage differential (KVRa - PC), which characterizes the difference between the gross return on assets and the average interest rate for a loan.3. The financial leverage ratio (LC / CK), which characterizes the amount of borrowed capital used by the enterprise, per unit of equity.

The financial leverage tax corrector practically does not depend on the activity of the enterprise, since the profit tax rate is set by law. The financial leverage differential is the main condition that forms the positive effect of financial leverage. This effect appears only if the level of gross profit generated by the assets of the enterprise exceeds the average interest rate for the loan used. The higher the positive value of the financial leverage differential, the higher, other things being equal, its effect will be. Due to the high dynamism of this indicator, it requires constant monitoring in the process of managing the effect of financial leverage. First of all, during a period of deterioration in the financial market, the cost of borrowed funds can rise sharply, exceeding the level of gross profit generated by the company's assets.

In addition, a decrease in the financial stability of an enterprise in the process of increasing the share of borrowed capital used leads to an increase in the risk of its bankruptcy, which forces creditors to increase the interest rate for a loan, taking into account the inclusion of a premium for additional financial risk in it. At a certain level of this risk (and, accordingly, the level of the general interest rate for a loan), the financial leverage differential can be reduced to zero (at which the use of borrowed capital will not increase the return on equity), and even have a negative value (at which the return on equity capital will decrease, since part of the net profit generated by equity capital will be spent on the formation of borrowed capital used at high interest rates). Thus, a negative value of the financial leverage differential always leads to a decrease in the return on equity ratio. In this case, the use of borrowed capital by the enterprise has a negative effect.

Financial leverage ratio is the lever that causes a positive or negative effect obtained due to its corresponding differential. With a positive value of the differential, any increase in the financial leverage ratio will cause an even greater increase in the return on equity ratio, and with a negative value of the differential, an increase in the financial leverage ratio will lead to an even greater rate of decline in the return on equity ratio. In other words, an increase in the financial leverage ratio causes an even greater increase in its effect (positive or negative, depending on the positive or negative value of the financial leverage differential).

So leverage is a complex system management of assets and liabilities of the enterprise. Any enterprise strives to achieve two main goals of its activities - increasing profits and increasing the value of the enterprise itself. Under these conditions, leverage becomes the tool that allows you to achieve these goals, through influences on changes in the ratios and return on equity and borrowed capital.

Leverage in financial analysis

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 of leverage: production, financial and production-financial. In the literal sense, "leverage" is a lever, with a little effort which can significantly change the results of the production and financial activities of the enterprise.

To reveal its essence, we present the factor model of net profit (NP) as the difference between revenue (B) and production costs (IP) and financial nature (FI):

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

By definition, V.V. Kovalev, industrial leverage is a potential opportunity to influence the profit of an enterprise by changing the structure of the cost of production and the volume of its output. The level of industrial leverage is calculated by the ratio of the growth rate of gross profit (P%) (before interest and taxes) to the growth rate sales volume in natural, conditionally natural units or in value terms (VRP%):

The table shows that the largest value of the coefficient of production leverage is the enterprise, which has a higher ratio of fixed costs to variables. Each percentage increase in output under the current cost structure ensures an increase in gross profit at the first enterprise of 3%, at the second - 4.125, at the third - 6%. Accordingly, with a decline in production, profit at the third enterprise will decrease 2 times faster than at the first. Consequently, the third enterprise has a higher degree of production risk. Graphically, this can be represented as follows (Fig. 24.2)

On the abscissa axis, the volume of production is plotted on an appropriate scale, and on the ordinate axis, the increase in profit (in percent). The point of intersection with the abscissa axis (the so-called "dead point", or equilibrium point, or break-even sales volume) shows how much each company needs to produce and sell products in order to reimburse 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. Under the current structure, the break-even volume for the first enterprise is 2000, for the second - 2273, for the third - 2500. The greater the value of this indicator and the angle of the graph to the x-axis, the higher the degree of production risk. The second component of the formula (24.1) is financial costs ( debt service 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 the leverage of financial leverage (the ratio of debt and equity capital) can lead to both an increase and a decrease in net profit.

The relationship between profit and the ratio of own and borrowed capital is what financial leverage is. According to V.V. Kovalev's definition, financial leverage is a potential opportunity to influence the profit of an enterprise by changing the volume and structure of equity and borrowed capital. Its level is measured by the ratio of the growth rate of net profit (NP%) to the growth rate of gross profit (P). It shows how many times the growth rate of net profit exceeds the growth rate of gross profit. This excess is ensured by 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 the leverage, depending on the prevailing conditions, you can influence the profit and return on equity.

The 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 loans and borrowings. 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 conduct a comparative analysis of financial risk with a different capital structure. According to Table. 24.8 calculate how the return on equity will change when the profit deviates from the baseline by 10%.

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 this situation, a 1% change in gross profit results in the same increase or decrease in net profit. It is easy to see that with an increase in the share of borrowed capital, the range of variation in the return on equity (RCC), the financial leverage ratio and net profit increases. This indicates an increase in the degree of financial risk of investing with a high leverage. Graphically, this dependence is shown in Fig. 24.3. On the abscissa axis the value of gross profit is plotted on an appropriate scale, and on the ordinate axis - 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 also reflects the degree of financial risk. The degree of risk is also characterized by the steep slope of the graph to the x-axis.

The general indicator is production and financial leverage- the product of the levels of production and financial leverage. It reflects the general risk associated with a possible lack of funds to cover production costs and financial costs for servicing external debt. For example, an increase in sales is 20%, gross profit - 60%, net profit - 75%:

Based on these data, we can conclude that with the current cost structure at the enterprise and the structure of capital sources, an increase in production by 1% will ensure an increase in gross profit by 3% and an increase in net profit by 3.75%. Each percentage increase in gross profit will result in a 1.25% increase in net profit. In the same proportion, these indicators will change with a decline in production. Using them, it is possible to evaluate and predict the degree of production and financial investment risk.

Deleveraging in the global economy

Deleverage is - the process of reducing leverage, i.e. level of debt. There is an opinion that deleveraging is the main reason for the long-term (decade) cyclical decline in economic activity. Deleverage can be achieved in 3 ways: repayment of debts by the entity, increase in the equity capital of the entity, write-off of the debt of the entity by the creditor.

The subjects in this case can be: an ordinary consumer, a company or a bank, the state. That is, the term deleveraging can be applied to the widest range of subjects - from a person to an entire state. Deleverage can be inflationary or deflationary. Inflationary deleveraging: Germany 1920s, Latin America 1980s Deflationary deleveraging: US Great Depression 1930s, Japan 1990s.

The main difference between the 2008 crisis and previous economic cyclical downturns in the US is that the collapse of the real estate market was the trigger for the beginning of the process of deleveraging (decrease in leverage) at all levels of economic entities. At the same time, American households were hit hardest. Private sector spending forms 70% of US GDP. Deleverage is rare in a historical context: Weimar Republic: 1919-1923, USA: Great Depression in the 1930s, UK: 1950s and 1960s, Japan: last 20 years, USA: 2008 to present, Spain: today. As can be seen, such phenomena in the US economy last took place during the Great Depression of the 1930s. And the latest striking example on a global scale (until 2008) is Japan, which since the early 1990s has not been able to recover from the effects of deleveraging that came after the collapse of the national real estate market.

It is important to distinguish between the concepts of recession (contraction of the economy within short business cycles) and prolonged economic depression (contraction of the economy caused by the process of deleveraging). How to deal with recessions is well known for the reason that they happen quite often. While depressions and deleveraging remain poorly understood processes and are extremely rare in a historical context.

A recession is a slowdown in the economy due to a reduction in the growth rate of private sector debt arising from the tightening of central bank monetary policy (usually for inflation control purposes). A recession usually ends when the central bank makes a series of interest rate cuts to stimulate demand for goods/services and the growth of credit that finances that demand. Low rates allow: 1) to reduce the cost of servicing debt 2) to increase the prices of stocks, bonds and real estate through the effect of increasing the level of net present value from discounting expected cash flows at lower rates. This has a positive effect on the well-being of households and increases the level of consumption.

Deleverage is the process of reducing the debt burden (debt and payments on this debt in relation to income) within the framework of a long-term credit cycle. A long-term credit cycle occurs when debts grow faster than income and ends when the cost of servicing the debt becomes prohibitive for the borrower. At the same time, it is impossible to solve the problem exclusively by monetary methods, because interest rates tend to drop to zero during deleveraging. A depression is a phase of economic contraction in the process of deleveraging. A depression occurs when the reduction in the growth rate of private sector debt cannot be prevented by lowering the value of money by the central bank. In times of depression, a large number of borrowers do not have enough funds to repay their obligations, traditional monetary policy is ineffective in reducing debt service costs and stimulating credit growth.

Within the framework of deleveraging, the following processes take place: debt reduction (of households, businesses, etc.), the introduction of austerity measures, the redistribution of wealth, and the monetization of public debt. The preponderance of the first two processes leads to deflationary deleveraging, the preponderance of the last two leads to inflationary deleveraging.

According to Ray Dalio, there are three types of deleveraging:

-“ugly deflationary deleveraging” (“ugly deflationary deleveraging”): economic depression - the central bank “printed” not enough money, so there are serious deflationary risks, and nominal interest rates are higher than nominal GDP growth rates;

- “beautiful deleveraging” (“beautiful deleveraging”): the “printing” press covers deflationary effects from debt reduction and austerity measures, positive economic growth, declining debt/income ratio, nominal GDP growth above nominal interest rates;

- “ugly inflationary deleveraging” (“ugly inflationary deleveraging”): the “printing” press is out of control, far outweighs deflationary forces, creating the risk of hyperinflation. In countries with a reserve currency, it can come with too long stimulation in order to overcome “deflationary deleveraging”.

A depression usually ends when central banks print money in the process of monetizing public debt in amounts that offset the deflationary depressive effects of debt reduction and austerity measures. Properly managing the amount of monetization of public debt against the backdrop of reducing private and corporate debt puts deleveraging into a phase “ beautiful deleveraging.” This is typical of the current state of the US economy today, with “ugly deflationary deleveraging” taking place from late 2008 to mid-2009. economy.

For example, during deleveraging, central banks lower rates to zero (ZIRP) and pursue unconventional monetary policies, creating an overhang of excess liquidity by expanding the monetary base through large-scale purchases of long-term assets (Quantitative Easing). This creates serious pressure on government bond yields (especially on the long section of the curve), which largely determine the dynamics of interest rates in the economy. During periods of deleveraging, national governments tend to spend huge budgetary funds to replace the shortfall in private sector demand, sharply increasing the external debt burden. You will never see such actions during recessions within short business cycles.

However, the unconventional policy of central banks only helps to mitigate deleveraging, but cannot directly affect this process. Coordinated actions of the monetary and fiscal authorities are needed. Besides, it takes a lot of time. History shows that the deleveraging process usually takes about 10 years. Sometimes this period is referred to as the “lost decade”. To fully understand the essence of the deleveraging process, it is necessary to carefully analyze the structure and changes in the balance sheets of the main US economic entities, which are published quarterly in the Z.1 “Flow of Funds Accounts” report of the Federal Reserve System (FRS). ) (latest data as of December 2012). The focus of our study is on households.

Loans secured by real estate (mortgage) ($9.4 trillion) account for 70% of liabilities ($13.4 trillion) of American households. Subtracting from total assets ($79.52 trillion) all liabilities ($13.4 trillion), we get the net asset value ( or equity, net worth) of households ($66.0 trillion). The data shows that real estate for an American household is the most important asset, and the mortgage is the most important liability. Can you imagine the impact US households suffered in 2008? This shock provoked the launch of deleveraging, i.e. a reduction in the level of leverage (or the level of debt load) of households in the segment of mortgage debt. Let's look at the process of deleveraging and clearing household balance sheets in detail. The data published in the US Federal Reserve's Z.1 reports date back to the 1950s. An analysis of the structure and dynamics of US households will show that situations similar to 2008 have not been in the US for at least the last 65 years (but it was during the Great Depression of the 1930s).

Today, the US economy is in a fairly “comfortable” stage of deleveraging (“beautiful delevereging”), when the amount of monetization of public debt outweighs the deflationary effects from reducing the level of debt burden of economic entities, and especially households. This creates the basis for nominal GDP growth to remain above the level of nominal interest rates.

Although traditional methods of monetary policy do not work in times of deleveraging, since the beginning of the acute phase of the 2008 crisis, the US Federal Reserve has been making every possible effort through the use of non-traditional tools to fulfill its dual mandate of ensuring price stability at full employment. Nearly five years after the start of the financial crisis, we can say that the Fed managed to prevent deflation and indirectly influence the economic recovery.

If in 2008 economic agents (whether it is debtors or creditors) did not have someone who would provide money behind their backs, then fire sales (forced emergency sales of assets) would have reached significant proportions, pledges would have passed from hand to hand and sold with significant discount, thus starting a deflationary spiral. The Fed, given the negative experience of the Great Depression of the 1930s, just offered the system as much money as was necessary to regain control over the money supply and inflationary processes in the economy. In addition, the Fed managed to significantly reduce the value of money, creating a favorable basis for the stock market. Household financial assets account for almost 70% of total assets. The restoration of the welfare of American households to pre-crisis levels largely depended on growth in financial markets. But not only the policy of "financial repression" brought the S&P 500 index to new historical heights in early 2013 - corporate profits in the United States at historical highs.

In order to replace the falling demand of the private sector during deleveraging, the government begins to increase the debt burden and expand the budget deficit. Under these conditions, it is extremely important for the financial authorities to have an agent behind their back, who will be guaranteed to buy new issues of debt obligations. This agent is the Fed, which is buying up treasuries as part of quantitative easing (QE) programs, and as a result has become the largest holder of the US government debt. However, monetary policy tools can only partially smooth out the process of deleveraging. The linkage of the central bank with the actions of the government is very important. It's safe to say that the Fed did everything it could. Today, the ball is on the side of politicians, Democrats and Republicans, who, since 2008, have not been able to actually prove their sincere desire and focus on solving the structural problems of the American economy. Half-hearted decisions are made, negotiations on the most important bills (on the fiscal cliff, the ceiling of the national debt, etc.), which are of paramount importance, are constantly frustrated. All this delays the process of deleveraging and negatively affects the US economy.

However, deleveraging at the household level, most affected by the 2008 crisis, has passed its equator. The "combat" power of the American authorities today is aimed at restoring the real estate market. Real estate is the largest household asset, mortgages are the largest liability. The essence of deleveraging lies precisely in the mortgage segment. The big positive shifts in the US real estate market took place in 2012 (largely under the influence of the Fed's “Twist” program). The positive scenario assumes that the deleveraging of households will end by mid-2015 and the economy will enter the stage of natural recovery, as before based on credit . At the same time, the Fed plans to withdraw from the accommodative monetary policy. But there are still many questions and difficulties along the way.

Today, it is extremely important for the US authorities to prevent a reduction in the level of debt at the household level. Reducing the volume of debt against the backdrop of rising household disposable income for the US economy, built on credit, can have very negative consequences. The savings rate continues to rise.

If we talk about the US stock market, then the most interesting strategy in the conditions of “financial repression”, in my opinion, is “buy the dip” (buying out the first drawdowns, corrections in the S&P 500). Today, all conditions have been created for the continued growth of shares through the passage of “traditional” seasonal corrections. Special attention worth paying American companies operating for the US domestic market.

Who needs leverage on ESM?

It hasn't been long since the ECB delighted the markets with its unlimited bond buying program for troubled countries, and now there are reports of the European Stability Mechanism's (ESM) leverage from 500 billion euros to 2 trillion euros.

This step will significantly increase the fund's capabilities in the event of rescue of such major countries like Spain and Italy. Whereas on this stage there is no talk of helping Italy at all, but Spain (if their prime minister nevertheless decides to apply for financial assistance) requires much less money.

By analogy with European Foundation financial stability (EFSF), funds from EU member states will be attracted to ESM (this money will be used, among other things, to buy bonds of problem countries), as well as funds from private investors that can be used for less risky operations. I wonder how they are going to lure private investors, who probably still have the Greek version of “calculation” still fresh in their memory?

As reported in the press, most EU countries support this idea, but some, such as Finland, traditionally oppose it. Given that the share of the same Finland in the "Eurozone box office" is quite small. But Germany is great, and not everything is as simple as we would like. The press service of the German Ministry of Finance said that a fourfold increase in ESM is unrealistic. Although it was previously reported that Germany is in favor of an increase. However, the ministry confirmed that they approve of this theory and that discussions of additional injections into the Mechanism are possible, but there is no talk of any specifics.

The complex relationship between the Bundesbank and the ECB is no secret. Everyone knows the attitude of the head of the German central bank to unlimited purchases of bonds by the ECB. And for shopping in general. But the Constitutional Court of Germany supported Mario Draghi's plan, recognizing the legitimacy of the country's financial injections into the Mechanism. But there is another piece of news: the Bundesbank and the ECB are bringing in lawyers to assess the legality of bond purchases. It is not clear whether this is such a procedure, or the head of the German central bank is not going to give up and is trying with all his might to “put spokes in the wheels” of the ECB. But that is not the point. The news about ESM leverage is still alarming. Is it really so bad that eurozone officials see a need for a quadrupling of ESM? Let's hope not. And leverage is needed so, just in case, it will suddenly come in handy.

Sources and links

en.wikipedia.org - the free encyclopedia

audit-it.ru - the financial analysis according to reporting

elitarium.ru - Elitarium - financial management

vedomosti.ru - Vedomosti - business dictionary

ibl.ru - institute of business and law

academic.ru - Academician - dictionary of terms crisis management

forum.aforex.ru - investor community forum

su.urbc.ru - Ural Business Consulting - information and analytical agency

afdanalyse.ru - analysis of the financial condition of the enterprise

mevriz.ru - magazine "Management in Russia and abroad"

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