Evaluation of the effectiveness of the use of own and borrowed...

Evaluation of the efficiency of using own and borrowed capital. The effect of the financial lever

Return on equity is a kind of closing indicator of the effectiveness of the enterprise. It takes a special place, because it reflects the profitability of the main source of funds - equity. Return on equity (CFU) - is the return on equity invested by shareholders. It is calculated on profit before tax or net profit:

The peculiarity of this indicator is that, firstly, it assesses the efficiency of using its own capital, and secondly, the degree of the enterprise's risk. Its dynamics affect the level of stock quotes.

The return on equity can be represented in the form of the following multi-factor multiplicative models, the extension method obtained:

where ROS - the net profitability of sales; I - coefficient of turnover of borrowed capital; To Fл is the coefficient of financial leverage.

The return on equity is directly dependent on the effective use of borrowed funds and the degree of financial risk: the higher the turnover of borrowed capital, the higher the profitability of own:

where No. - labor productivity; K kpt - the coefficient of capital-labor (characterizes the ratio of equity to the total number of employees).

The factor model shows a direct relationship between the return on equity and labor productivity and the inverse relationship to capital-armed labor calculated on the basis of equity per worker. In fact, the subordination of factors indicates the need to increase labor productivity by a smaller number of workers:

where KOL - return on total capital (assets); MK - multiplier (financial lever).

Estimating the close relationship between the return on equity and the profitability of total capital, between the degree of financial risk and the profitability of equity, this model clearly shows: with a decrease in the profitability of total capital ( YAO ) and the need to maintain the profitability of its own at the same level, it becomes necessary to increase the multiplier, i.e. in building up borrowed funds.

The multiplier gives an assessment of the financing policy: its high value, on the one hand, speaks about the growing risk of dependence on borrowed sources of financing, and on the other hand, on increasing the profitability of equity capital, provided that the economic profitability is greater than the weighted average price of borrowed capital.

The following factor model is the expanded DuPont model:

The factors included in the model give an idea of ​​the interrelated aspects of financial and economic activity in business management:

• on the effectiveness of cost management and price policy (profitability of sales);

• about the business activity of the enterprise: the degree of intensity of the use of assets and the main trends in the change in the nature of use (asset turnover ratio);

• about the degree of risk of dependence on borrowed capital (indicator of the capital multiplier).

Each of the deterministic models considered allows us to give a detailed assessment of the reasons for the change in the return on equity, thereby greatly expanding the possibilities of analytical research (Table 13.9).

Table 13.9

Input for calculating the impact of factors on return on equity





Net income, thousand rubles.




Net revenue from all types of sales, thousand rubles.




Total annual average capital, thousand rubles.


82 710


Including own capital, thousand rubles.




Return on total capital,%




Net Return on Sales,%




Coefficient of turnover of aggregate capital




Capital multiplier




Return on equity, %




The impact of factors on return on equity (%) ROE = ROS xKsH

Net profitability of sales (-3,60 x 1,43 х 3,13)


Coefficient of turnover (0,08 х (-0,43) х 3,13)


End of the table. 13.9




г, Г 0

Capital multiplier (0.08 x 1.0 x 1.35)


Balance of Variations


During the analyzed period, the profitability of equity decreased by 16.11%, while the level of profitability in the reporting year was less than 1%. A sharp decrease in net profit by 4246 thousand rubles. accordingly led to the same noticeable decrease in the profitability of sales, the share of its influence was decisive - the profitability of equity lost 16.12%. Two other factors - the turnover ratio (-0.1%) and the multiplier (0.10) - with negligible influencing values ​​had no noticeable effect.

Together with the calculation of the return on equity for a comprehensive assessment of the efficiency of the used capital, an analysis is made of the profitability of borrowed capital.

The profitability of borrowed capital can be obtained by dividing profit before taxation or profit from sales by the average annual amount of borrowed capital. Characterizes the amount of profit received by the organization for the analyzed period, attributable to each ruble of borrowed funds (loans, loans). This indicator estimates the effectiveness of the use of attracted sources for financing or non-current assets, if long-term sources or functioning capital prevail in the structure of debt capital.

Similarly, the profitability of borrowed funds (long-term and short-term) is determined.

One of the indicators of the evaluation of the effectiveness of the use of borrowed capital is the effect of the financial lever (EGF), which is calculated by the formula

where YAOA - the economic profitability of the aggregate capital (assets) before taxes; To n - the tax ratio (the ratio of the amount of income tax

to the amount of taxable profit); РZк - the average weighted price of borrowed resources (the ratio of expenses for servicing debt obligations to the average annual amount of borrowed funds, or the loan interest rate stipulated in the contract); ZK - borrowed capital (average value); SK - average annual amount of equity; ZK/SK - a lever of the financial lever.

The effect of the financial lever shows how much the return on equity {ROE) is increasing by raising borrowed funds in the company's turnover.

A positive effect occurs if the economic profitability of aggregate capital is higher than the price of borrowed funds (loan interest): ROA & gt; p x .

For example, the return on total capital after tax is 18%, while the interest rate for credit resources is 13%. The difference between the cost of borrowed capital in percent and the level of profitability of all capital allows increasing the return on equity. In this situation, the growth of borrowed capital will lead to an increase in the leverage of the leverage (FC/SC), and therefore, to a positive change in the effect of the financial leverage, i.e. increase in return on equity.

In most cases, the effect of financial leverage is used as a means of changing the cash flow and financial position of the company, as well as to raise the level of income. When deciding to increase the share of borrowed capital, a balanced approach and understanding of the degree of collateral risk is required.

If the return on aggregate capital is less than the average interest rate on borrowed capital (ROA

Zк ) , a negative effect (effect truncheons ). As a result of "eating" of own capital the financial condition worsens, the risk of bankruptcy increases.

The amount of increase in equity by borrowing sources is determined by the formula

The effect of the financial lever can only be calculated on the whole of the borrowed capital, but also for each of the sources: long-term, short-term bank loans, loans, commodity loans, accounts payable, etc.

In Table. 13.10 shows the initial data for calculating the effect of financial leverage.

Table 13.10

Baseline data for calculating the financial effect





T ',

T a

Total annual average capital, thousand rubles.


82 710


Of these:

loans and borrowings, thousand rubles. (average value)




average annual value of own capital, thousand rubles.




profit before taxation, thousand rubles




Total return on total capital (IOL),%




The amount of interest for a loan, thousand rubles.




The weighted average price of borrowed capital, %




Income tax, thousand rubles.




Taxation Ratio,%




Net income, thousand rubles.




Financial leverage effect,%




Amount of increase in equity due to borrowing, thousand rubles




The calculations in the table indicate the grossest mistakes made in the financial policy of the enterprise. The unacceptably low value of the financial leverage effect last year, equal to 0.003, warned that the economic profitability (6.28%) was almost equal to the weighted average cost of borrowings (6.27%). In such a situation, it was required to reduce the borrowed capital and increase the results from the current activity. Contrary to this, there was an increase in borrowed sources by 33,444 thousand rubles. As a result, interest payments alone exceeded RUB 5,900,000, an increase of RUR 3,447 thousand, while net profit lost RUR 4,246 thousand, to a mere 96 thousand rubles. The indicator of the financial leverage effect, which was quite predictable, dropped to a negative value (-16.2%), while the amount of lost equity due to its "eating" amounted to 4588 thousand rubles.

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