Each company is obliged to conduct research on its main financial and economic indicators. This allows you to organize the available resources as efficiently as possible. Therefore, control of sources of funds is ongoing.
Allows you to evaluate the correct structure of the ratio of borrowed and own funds. The formula of the indicator is necessarily used by analysts during the study. Based on the data obtained, conclusions are drawn about the financial stability of the enterprise, measures are being developed to improve profitability and sustainability.
Passive
The ratio of borrowed and own funds, the formula of which will be presented below, is calculated according to the liability of the company balance sheet. It displays all the financial sources that take part in the company.
The liabilities side of the balance sheet consists of equity, as well as long-term and short-term borrowed funds. Their ratio should be such that the organization was able to get the most profit when using the least amount of resources.
Own sources of formation of the company's property show the level of its stability. But using borrowed capital, the company can increase its net profit and profitability of operating activities. Therefore, a certain part of the sources of capital formation of the company should consist of investor funds.
Equity
The financial independence of the organization lies in the organization of its production activities at the expense of the owners. These are the sources of financing that the company fully owns. They are not refundable to investors, so they are considered free.
The company's own funds are formed from several sources. First of all, this is the authorized capital. The organization forms this fund in the process of its creation. Its size is established by law. The founder or founders contribute a certain part of their property to the authorized capital. According to their contribution, they are entitled to the same (percentage) profit after taxes and other mandatory contributions.
To equity include various contributions, donations, retained earnings. And if the owners are required to contribute the authorized capital to the general fund, then other injections are optional. Having received net profit in the reporting period, owners can decide on its full distribution among themselves. But sometimes it is more expedient to direct all this amount or only a part to the development of production. This article is called retained earnings.
Borrowed capital
The ratio of borrowed and own funds, the formula of which will be considered later, takes into account paid sources of financing. They can be long-term (held by the company for more than a year) or short-term (reimbursable during the operational period). These are the funds that the organization borrows from investors and creditors for a fee.
At the end of the term of use, the enterprise is obliged to repay the amount of the debt and pay for the use of this capital in the form of a fixed percentage. The use of such funds is associated with a certain risk. But with the right approach, the use of paid sources of financing in their activities can give a significant increase in net profit.
Calculation formula
In order to correctly understand the essence of the analysis of the balance sheet structure of a company, it is necessary to consider the formula for the ratio of financial sources. It is also called an indicator of financial independence. Its value is interesting both to analysts of the enterprise, and to regulatory authorities or investors. The more the company has its own funds, the lower the risk of non-return of capital for creditors. The formula for calculating the ratio of borrowed / own funds is as follows:
Kfz = ZS: SS * 100%, where ZS - borrowed funds, SK - own funds.
The higher this indicator, the more dependent the enterprise is on paid sources. The growth of the indicator in dynamics indicates a decrease in financial stability, an increase in risk for investors.
Financial leverage
The calculation of the coefficient of financial dependence in the world literature is called an indicator of financial leverage or leverage. This is one of the most important indicators of the financial condition of the organization. Together with it, the coefficient of maneuverability of capital, autonomy and financial dependence are necessarily calculated.
Leverage calculation allows you to assess the opportunities and prospects of business development through borrowed capital. With its help, the enterprise forms financial leverage. This allows you to significantly increase the return on your own resources.
Financial leverage is calculated using the above formula. Data for the study is taken from the balance sheet. To borrowed capital include long-term and short-term liabilities reflected in the liability.
Normative value
The financial independence of the organization is determined if the ratio of sources is 1. This means that in the liability side of the balance sheet both capital items are 50% each.
For some companies it is considered normal if this indicator increases to 2. This is especially true for large organizations. However, too much importance of financial leverage is considered a deviation from the norm. This means that the company organizes its activities on the basis of borrowed capital. To repay a debt, it will take a lot of time and money. Therefore, investors do not want to invest in such enterprises. High risk of non-return of their capital.
Too large a coefficient of independence indicates a loss of organization ability to increase the profitability of property. Therefore, this analysis does not accept either a coefficient that is too large or too small.
Security of equity
When calculating the independence of the enterprise, analysts should calculate the amount of their own sources of financing in the balance sheet structure that would bring maximum profit. If the organization attracts borrowed capital, it is simply necessary. Therefore, along with the coefficient of financial leverage, they calculate the security of own funds (autonomy):
Ka = CK: WB, where WB is the balance sheet currency.
Its normative value should be at least 0.5. The optimal indicator for most enterprises is considered to be 0.7. Western enterprises operate with a minimum value of the autonomy coefficient of 0.3-0.4. It depends on the industry, as well as the ratio of current and non-current assets.
The more capital-intensive production (the greater the share of fixed assets), the more long-term sources of financing are necessary for the enterprise.
Price of capital
When calculating the independence coefficient, analysts, in addition to the amount of equity, determine the cost of borrowed funds. To do this, you need to find out the amount of interest that the company is obliged to pay to creditors at the end of the life of their property.
To do this, use the weighted average cost of borrowed capital. It looks like this:
Tsk = Σ (Tsk * Dk), where k is the number of paid sources of financing, Tsk is the cost of each source, Dk is a share in the total amount of capital.
Based on the data obtained, the financial risk of the enterprise is determined.
