Analysis of indicators of solvency and liquidity, financial...

Analysis of indicators of solvency and liquidity, financial stability, profitability and business activity

Coefficient analysis should begin with the calculation of solvency and liquidity indicators, because they are of the greatest interest to the bank.

The calculated liquidity and solvency indicators of OJSC "Mig" are presented in Table. 8.13.

Table 8.13

Liquidity and solvency indicators of OJSC "Mig"

No.

pp

The name of the indicator

Value

Year preceding the previous

Previous year

Reporting year

1

Coefficient of General Solvency (Cop)

2.09

2.15

2.19

2

Absolute liquidity ratio (K al )

0.009

0.014

0.007

3

Intermediate liquidity ratio (K pl )

1.017

1,060

1.543

4

Stock liquidity ratio (Kla)

0.389

0.508

0.576

5

Coefficient of current liquidity (Ктл)

1.475

1,645

2.22

6

Coefficient of maneuverability (KM)

0.631

0.547

0.413

7

Degree of solvency for current liabilities (K пт ), months.

5,414

3,814

2,292

8

Degree of solvency general (KPO), months.

6,041

5,321

5,624

9

Debt ratio for bank loans and loans

(K, k), month

4,366

3.758

4,376

10

Coefficient of debt coverage (К пд ),%

45.4

77.2

78.9

11

Coefficient of debt coverage (by EBITDA), %

50.9

38.4

48.5

12

Debt repayment period (LDP), years

2.20

1.30

1.27

13

Debt repayment period (by EBITDA), years

1.97

2.61

2.06

14

Coefficient of coverage of short-term debt (Kppd),%

52.4

125.9

311.7

15

Coefficient of coverage of short-term debt (by EBITDA), %

58.8

62.6

191.8

16

Interest Coverage Ratio (CIP)

5.16

4.98

10.93

17

Interest Coverage Ratio (EBITDA)

5.78

2.48

6.72

The company's total solvency index is 2.19, which is higher than the minimum allowable value of 2. This factor indicates that the borrower's assets cover his borrowed capital more than 2 times, which positively characterizes the solvency of OJSC "Mig". In addition, the value of the coefficient from year to year is gradually increasing.

Absolute liquidity ratio of OJSC "Mig" is 0.007, which is below the minimum recommended value of 0.2. Thus, at the expense of cash, the company can pay only 0.7% of its short-term obligations. Historically, the value of this coefficient from OJSC "Mig" was always below the norm. However, a small amount of money on the balance sheet of the company does not characterize the financial situation of the organization from the negative side, since, as a rule, companies need money only to cover small expenses, and therefore large amounts of money indicate the company's inability to spend it rationally and invest in expansion of business.

The coefficient of intermediate liquidity is 1.54, which is above the minimum allowable value of 0.7. Thus, cash and short-term accounts receivable of the company excessively cover short-term obligations, which is a positive moment for OJSC "Mig".

The company's current liquidity ratio is high and is 2.22. This suggests that if all short-term debt is claimed by creditors, it will be covered solely from current assets. Thus, organizations will not have to sell off the non-current assets that underlie the activities of any operating company, and therefore the principle of the continuity of the company's activities will not be compromised. The dynamics of this coefficient also indicates a constant growth of the current liquidity of the company.

Stock liquidity ratio of OJSC "Mig" is equal to 0.58, therefore, 58% of the company's short-term liabilities can be covered at the expense of funds received from the sale of production stocks. However, it should be borne in mind that the book value of stocks may be below market (due to their obsolescence or difficulties with sales). In this case, in the real situation, the funds from the sale of inventories can cover a smaller share of current liabilities.

Next, we determine the degree of the company's solvency but current obligations. The value of the indicator does not exceed three months and, therefore, it can be concluded that the organization is able to pay and its ability to meet its short-term obligations in the shortest time due to sales revenue. It should be noted that OJSC "Mig" is working to increase its solvency, increasing revenue and reducing current liabilities.

The total solvency of the company for all its obligations is also at an acceptable level. Semi-annual revenue of OJSC "Mig" enough to cover all liabilities to creditors. Historically, the total solvency of the company (the maturity of debts) has always been approximately at this level for 5-6 months.

The debt ratio on bank loans and loans is very important for the bank in assessing the financial position of the borrower, since it allows you to judge the timing during which the borrower will receive sufficient revenue to cover loans and borrowings. The value of this indicator in OJSC "Mig" a little more than four months, which indicates a sufficient solvency of the company and its potential ability to repay debts to banks.

We will also calculate a number of solvency indicators, which are especially important for creditor banks for assessing the company's creditworthiness.

Coefficient of debt coverage of OJSC "Mig" is 78.9%, which indicates that 78.9% of the company's debt can be repaid at the expense of annual sales profit. A positive fact is an increase in this indicator in the dynamics.

It is worth noting that in practice banks (especially foreign ones) widely use EBITDA in the calculation of coefficients, which means annual gross profit before interest, dividends, taxes and depreciation are deducted from it. In general, the indicator characterizes the company's operating result without taking into account the "paper" costs, such as depreciation, impairment of assets, etc. There is no single method for calculating EBITDA, and each organization independently determines for itself how to determine this indicator. The calculated EBITDA in the reporting year is 2.26 billion rubles. It is lower than the profit from sales due to the impact of other operating expenses. Thus, the coefficients calculated on the basis of this indicator are more conservative.

Debt coverage ratio (according to EBITDA) OJSC "Mig" is equal to 48.5%, which indicates that approximately half of the company's total debt can be covered by the company's operating profit.

The repayment period of OJSC "Mig" is equal to 1.27 years, which is acceptable for the bank for a period, since the company is able to pay even long-term debt in a relatively short time. A gradual decline in the repayment period is positively assessed.

Next, we calculate the same coefficient, but based on EBITDA. In this case, the debt repayment period is slightly more than two years (2.06 years).

The coverage ratio of the company's short-term debt is 311.7%, which indicates that with the help of the annual profit from the sales of OJSC "Mig" will be able to pay off short-term loans and loans and profits from sales will be enough to cover the existing short-term debt more than 4 times. It is worth noting a significant increase in this indicator in the dynamics due to the decrease in the value of short-term loans and loans and the growth of profit from sales.

Coefficient of coverage of short-term debt (EBITDA) of the company is 191.8%. Despite a more conservative estimate, the company's annual operating profit is more than enough to pay short-term loans and loans.

Coefficient of interest coverage of OJSC "Mig" is 10.93, which means that the profit from sales is 11 times higher than the company's interest expense. Therefore, the creditor bank can be sure that the profits from the company's sales will be enough to service the debt.

We calculate this coefficient on the basis of EBITDA, it is equal to 6.72, which means that the company's operating profit will be enough to pay interest accrued.

In general, solvency and liquidity of OJSC "Mig" can be characterized as high for a company of this scale and industry. The unsatisfactory value of the absolute liquidity ratio is uncritical when assessing the overall liquidity and solvency of OAO MIG. It is worth emphasizing that such important for the creditor bank solvency indicators, like debt coverage ratio, debt repayment period and interest coverage ratio, are at a sufficient level.

Next, we calculate and analyze the indicators of business activity and turnover of OJSC "Mig" (Table 8.14).

Table 8.14

OJSC Mig turnover and business activity indicators

No.

pp

The name of the indicator

Value

Year preceding the previous

Previous year

Reporting year

1

Asset Turnover Ratio (K (in)

0.948

1,047

0.974

2

Factor of turnover of own capital (Kogk)

1.815

1.955

1,793

3

Non-current assets turnover ratio (Cova)

2.571

2,314

1,660

4

Coefficient of turnover of current assets (Kooa)

1.501

1,913

2.359

5

Inventory turnover (in days) (Oa)

64

59

40

6

Turnover of receivables (in days) (ODA)

166

121

107

7

Turnover of trade receivables (in days) (Otsz)

97

67

78

8

Turnover of accounts payable (in days) (Okz)

49

45

36

9

Turnover of trade payables (in days) (Ref)

41

30

30

The turnover of the entire accounts receivable of the company is 107 days, and the trading - 78 days. Compared to the previous year, the turnover of debts of buyers and customers increased by 11 days, which indicates a softening of the operating conditions of OJSC "Mig" with buyers and giving them longer delays in payment. However, such changes should not be considered only from the negative side, because often due to milder payment terms the company manages to conclude contracts for supply at a more favorable price or other favorable commercial terms. In part, the slow turnover of accounts receivable is also explained by the fact that OJSC "Mig" sells products through subsidiaries, which by virtue of their affiliation provides long-term trade credits.

The turnover of the company's total accounts payable is 36 days, and trading - 30 days. It is worth noting that in comparison with last year the turnover of debts to suppliers and contractors has not changed, and compared to the year preceding the previous one was reduced by 11 days. The reduction in the period of turnover of trade payables is not a positive fact for the company, since it means that contracts with suppliers began to be concluded on less favorable terms, providing for payment of supplies in shorter terms.

From the analysis it follows that the turnover of receivables is slower than the payables. This situation is generally unprofitable for the company, as there are gaps between outgoing and incoming payments. For the JSC "Mig" such a gap is 48 days, which is not a very long period of time, but still not the best way to characterize the system of work with counterparties. It should be noted that in order to solve this problem, OJSC "Mig" has overdraft accounts in a number of banks, thanks to which payments to creditors will be made even in a situation where funds from debtors have not yet been received.

For the analyzed period, inventory turnover was 40 days, which is a normal value for the type of activity in question (production and sale of perfume cosmetic products). Compared with last year, the turnover of stocks decreased by 19 days, which indicates that the company does not allow the overaccumulation of stocks. It can also be noted that the sale of products has become more active, as the company manages to maintain a stable value of products in warehouses, while simultaneously increasing revenue.

Shareholder equity ratio of OJSC "Mig" is 1.79, which is less than the similar indicator for the previous year (1.95) due to the fact that the growth rate of revenue (+ 14%) is lower than the growth rate of own capital (+ 24%). However, the dynamics of this indicator is more interesting for the owners of the organization than for creditors.

The company's assets turnover ratio for the period under review decreased from 1.03 to 0.97. The decrease in the indicator is insignificant, but it speaks about less intensive use of all available resources of the organization. This is primarily due to the fact that the company's assets are growing at a faster rate (+ 22.6%) than revenue (+ 14%).

Thus, the turnover and business activity of OJSC "Mig" can be assessed as sufficient and relevant to the type of company's activities. According to the author, the declining turnover of non-current and total assets does not indicate a deterioration in the financial condition of OJSC "Mig" and was caused solely by a significant increase in long-term financial investments.

Next, we turn to the calculation of financial stability indicators. The calculated financial stability indicators of OJSC "Mig" are presented in Table. 8.15.

Table 8.15

Financial stability indicators of OJSC "Mig"

No.

pp

The name of the indicator

Value

Year preceding the previous

Previous year

Reporting year

1

The coefficient of autonomy (financial independence) (Kfn)

0.523

0.536

0.543

2

Coefficient of financial dependence (K F Z )

1,914

1.867

1.840

3

Financial Stability Ratio (Κ fu )

0.572

0.667

0.814

4

Concentration of attracted capital (CCP)

0.477

0.464

0.457

5

Capitalization coefficient (Kcap)

0.914

0.867

0.840

6

Financing ratio (Kfin)

1,094

1.154

1,190

7

Long-term borrowing ratio (KDP)

0.087

0.197

0.332

8

Own working capital (SOK), million rubles.

1508

889

-572

9

Own and long-term borrowed capital in turnover (SRO), million rubles.

1994

2296

2976

10

Coefficient of provision by own means (K os )

0.243

0.152

-0.106

11

Equity ratio of own circulating assets (Goats)

0.924

0.491

-0.407

12

Coefficient of maneuverability of equity

(Kmsok)

0.294

0.155

-0,080

13

Ratio of mobile and immobilized funds

(Km)

1,711

1,209

0.704

The most popular indicator for assessing financial sustainability is the autonomy ratio, which OJSC "Mig" is at an acceptable level of 54.3%. Thus, it can be argued that the company's assets are 54.3% covered by own capital, and the remaining 45.7% is borrowed. A positive trend is the gradual growth of this indicator. It should be noted that the growth of equity is achieved solely by increasing the retained earnings of OJSC "Mig", and not artificially - as a result of "bloating" additional capital through revaluation of assets, as many companies do, wishing to increase their attractiveness to investors and partners.

Also, the stability of the company is evidenced by the high value of the financial stability factor - 81.4%. Thus, 81.4% of all the assets of OJSC "Mig" is financed by sustainable sources, such as own and long-term borrowed capital. Considering the dynamics of this indicator, we should note its growth, which was achieved due to a gradual increase in equity and the transfer of short-term loans to long-term.

The most common assessment of the financial stability of an organization gives a capitalization ratio, which in relation to OJSC "Mig" is 0.84, which is below the maximum allowable value (1.5). Thus, the company has an optimal ratio of debt and equity. It should be noted that, despite a significant increase in long-term liabilities (more than 2.5 times), the value of the indicator fell from 0.87 to 0.84. Therefore, OJSC "Mig" it is possible to attract borrowed funds intelligently, without worsening (and even slightly improving) their financial stability.

An important indicator of assessing the financial stability of the borrower is the availability of its own working capital:

SOK = SK - VA = -572 mln rubles.

The OJSC "Mig" the value of this indicator is negative, which indicates that all current assets and 7% of non-current assets are financed by borrowed funds.

However, it should be noted that the value of own working capital became negative only in the reporting year. The reason for the deterioration was a significant increase in long-term financial investments, noted in the structural-dynamic analysis of the balance sheet. From the point of view of the creditor, the further transformation of OJSC "Mig" is a concern. in a financial institution and a gradual "withering away" its operational functions, since it is less risky for a bank to lend to a company engaged in active production activities, rather than concentrating on the balance of investments and subsidiaries. However, in accordance with the strategy of OJSC "Mig", the company does not plan to convert to an exclusively holding structure.

Also, due to the growth of long-term financial investments, the ratio of mobility (mobility) of assets declined from 54.7 to 41.3% and the ratio of mobile and immobilized assets of the company from 1.21 to 0.70.

On the basis of the analysis of financial stability, conflicting results were obtained: on the one hand, there are favorable changes in a number of indicators (autonomy, financial dependence, sustainability, capitalization, financing, long-term borrowing), and on the other hand, the absence of own working capital gives a conclusion on the exceptional stability of the financial position of OJSC "Mig".

Finally, we will analyze the profitability of OJSC "Mig".

The calculated profitability and efficiency indicators of OJSC "Mig" are presented in Table. 8.16.

Table 8.16

Profitability indicators of OJSC "Mig"

No.

pp

The name of the indicator

Value, %

Year preceding the previous

Previous year

Reporting year

1

Profitability of main activity (Р "л)

19.76

31.87

40.40

2

Profitability of sales on profit from sales (Рп1)

16.50

24.17

28.77

3

Profitability of sales on profit before tax (Рп2)

9.83

7.50

15.94

4

Net profitability (Рч)

8.70

5.80

12.54

5

Return on assets (Ra)

8.25

6.07

12.22

6

Return on equity (Rsk)

15.79

11.33

22.49

7

Profitability of borrowed capital (R, k)

17.28

13.07

26.76

8

Profitability of non-current capital (RVK)

22.36

13.41

20.82

9

Return on working capital (Rock)

13.07

11.09

29.59

The profitability of core activities is 40.4%, which is higher than in the previous two years (19.8% and 31.9%, respectively). Such dynamics testifies to growth of profit on sales for each ruble of expenses and positively characterizes management of expenses and efficiency of the company.

The company's sales profitability (by profit from sales) also improved (from 24.2% to 28.8%), which confirms effective brand and cost management. The most cost-effective products of OJSC "Mig" are skin care products (42.8% of revenue), hair care products and oral care products (11.4% of revenue). However, in each product category, the company determines the claimed and profitable brands and, depending on this, adjusts the release plans.

The company's profitability (by profit before tax) for the year increased more than 2 times and amounted to 15.9%, which is higher than the pre-crisis level (9.83%). Such results were achieved by reducing interest and other costs.

Net profitability was 12.5%, which is a high indicator for the domestic company engaged in the production and sale of cosmetic products. It can be concluded that, despite the high competition from foreign companies (such as Avon, L'Oreal, Schwarzkopf & Henkel, Gillette, etc.), OJSC "Mig" managed to find a niche market that provides sufficient profitability of activities.

Return on assets of OJSC "Mig" amounted to 12.2%, which is 2 times higher than last year (6%). The growth of this indicator indicates an increase in the efficiency of the use of the organization's property.

Profitability of own and borrowed capital of OJSC "Mig" is 22.5 and 26.8%, respectively, which reflects the effectiveness of these sources of financing. Compared with the performance of previous years, the profitability of own and borrowed funds has increased significantly.

Based on the results of the coefficient and structural-dynamic analysis, we can conclude that, on the whole, the financial condition of the company is fairly stable, and OJSC "Mig" - sufficiently reliable borrower. The only indicator that does not give the right to call the financial position of the company good, is the negative value of its working capital. Potential risks include the transformation of the company into an exclusively holding company, a loss of control over the buildup of the debt burden, and a reduction in the market share as a result of competitors entering the market of inexpensive cosmetics or changing consumer preferences towards more expensive brands.

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