Liquidity of a commercial bank is the ability to timely and without loss fulfill their obligations to clients (depositors, creditors, investors).
Bank obligations can be real and conditional.
Real obligations are reflected in the bank's balance sheet in the form of demand deposits, time deposits, attracted interbank resources, creditors' funds. Potential or off-balance sheet liabilities expressed in guarantees issued by the bank, open credit lines to customers, etc.
Real obligations - these are the liabilities that are reflected in the respective balance sheets in the form of deposits, attracted interbank loans, issued valuable papers(bills, deposit and savings certificates).
Contingent Liabilities - These are liabilities of the bank reflected in off-balance sheet accounts. These are obligations that may arise under certain circumstances, such as guarantees, guarantees issued by a bank.
According to the terminology established by IFRS, real and contingent liabilities are monetary and other liabilities arising from transactions using financial instruments, i.e. any contract that gives rise to a monetary asset of one enterprise and a monetary liability or capital instrument of another enterprise.
Bank liquidity factors
Factors that determine the liquidity of a commercial bank can be internal and external.
Internal factors include:
- the quality of the bank's assets;
- the quality of funds raised;
- conjugation of assets and liabilities by terms;
- management and image of the bank.
Strong capital base means there is a significant absolute value equity. The basis of equity capital is statutory fund and other funds of the bank intended for various purposes, including to ensure the financial stability of the bank. The larger the bank's equity capital, the higher its liquidity.
Another factor affecting the bank's liquidity is the quality of its assets. When calculating the ratios, the assets of a commercial bank are divided into five risk groups, taking into account the degree of risk of investing funds and, accordingly, the possible loss of part of the value of these funds in an unfavorable situation. At the same time, individual categories of assets included in each of the five groups are assigned an appropriate risk adjustment factor (from 0 to 100%), which shows what part of the value of this category of assets can be lost, or otherwise, to what extent it is safe to invest in gu or another category of the bank's assets.
External factors include:
- general political and economic situation in the country;
- development of the securities market and the interbank market;
- the system of refinancing by the Bank of Russia of commercial banks;
- effectiveness of the supervisory functions of the Bank of Russia.
The general political and economic situation in the country creates the prerequisites for the development of banking operations and the successful functioning of the banking system, ensures stability economic basis activities of banks, strengthens the confidence of domestic and foreign investors in banks. Without these conditions, banks are not able to create a stable deposit base, achieve profitability of operations, improve the management system, and improve the quality of assets.
The development of the securities market makes it possible to provide an optimal system of liquid funds without loss of profitability, since the fastest way to convert bank assets into cash in most foreign countries associated with the functioning of the stock market.
The development of the interbank market contributes to the redistribution between banks of temporarily free cash resources, maintaining the liquidity of commercial banks. The system of refinancing of commercial banks by the Bank of Russia is also connected with this factor. In this case, the Bank of Russia becomes the source of replenishment of resources, with the help of which the liquidity of a commercial bank is maintained.
The effectiveness of the supervisory functions of the Bank of Russia determines the degree of interaction between the state supervisory authority and commercial banks in terms of liquidity management.
Bank liquidity management
The liquidity of the bank is closely related to the liquidity of the balance sheet. In order to maintain the liquidity of the balance sheet, the bank is obliged to constantly maintain the necessary and sufficient level of funds on correspondent accounts, cash on hand, marketable assets, i.e. manage liquidity.
The main elements of liquidity management are:
- analysis of the state of instant, current and long-term liquidity;
- drawing up a short-term liquidity forecast;
- conducting liquidity analysis and using developments that are negative for the bank (market conditions, position of borrowers and creditors);
- determination of the bank's need for liquidity;
- determination of liquidity excess/shortage and its maximum allowable values;
- assessment of the impact on the state of liquidity of operations in foreign currency;
- determination of limit values of liquidity ratios for each currency and for all currencies in general.
Assessing the bank's liquidity is one of the most difficult tasks, allowing you to get an answer to the most important question: is the bank able to meet its obligations. The bank's ability to meet its obligations is influenced by the characteristics of the state and changes in the resource base, the return of assets, the financial result of the activity, the size of the bank's own funds (capital), as well as the quality of the bank's management, management, which at certain moments can play and play a decisive role.
To control the state of the bank's liquidity, three liquidity ratios (instant, current and long-term) have been established. They are defined as the ratio between assets and liabilities, taking into account the terms, amounts and types of assets, as well as other factors.
Instant liquidity ratio (N2) regulates (limits) the risk of loss of liquidity by the bank within one business day and determines the minimum ratio of the amount of the bank's highly liquid assets to the amount of the bank's liabilities on demand accounts.
The standard is calculated by the formula
- L a.m - highly liquid assets, i.e. financial assets that are to be received within the next day and can be immediately claimed by the bank and, if necessary, sold by the bank in order to immediately receive funds, including funds on correspondent accounts of the bank with the Bank of Russia, in banks of countries from among the “group of developed countries", cash desk of the bank. The indicator L a.m is calculated as the sum of the balances on the cash accounts, correspondent accounts, receipts for the due dates;
- About w.m- obligations (liabilities) on demand, for which the depositor or creditor may demand their immediate repayment. The Ovm indicator is calculated as the sum of balances on demand accounts, with certain adjustments. Calculations of L a.m. and O v.m. are made in accordance with the instructions of the Bank of Russia. The minimum allowable value of the standard H2 set at 15%.
Bank's current liquidity ratio (NZ) limits the risk of liquidity loss by the bank during the next 30 calendar days and determines the minimum ratio of the amount of the bank's liquid assets to the amount of the bank's liabilities on demand accounts and for up to 30 calendar days.
The current liquidity ratio (N3) is calculated by the formula
- L a.t— liquid assets, i.e. financial assets that must be received by the bank or may be claimed within the next 30 calendar days in order to receive funds within the specified time frame. The indicator L a.m is calculated as the sum of highly liquid assets (the indicator L a.m) and balances on certain balance accounts;
- About w.t- obligations (liabilities) on demand, for which a depositor or creditor may submit a demand for their immediate repayment, and bank obligations to creditors (depositors) due within the next 30 calendar days. The W.t. indicator is calculated as the sum of balances on certain balance accounts.
Calculations of L a.t and O v.t are made in accordance with the instructions of the Bank of Russia. The minimum allowable value of the H3 standard is set at 50%.
Highly liquid and liquid assets include only those financial assets of the bank, which, in accordance with normative documents of the Bank of Russia belong to the first category of quality (1st risk group) and the second category of quality (2nd risk group). In addition to the above assets, the calculation of indicators L a.m and L a.t includes balances on balance accounts for which there are no requirements for the formation of reserves, if the assets on the corresponding balance accounts are planned by the bank to be received within 30 next calendar days. days in a form that allows them to be classified as highly liquid and liquid assets.
Long-term liquidity ratio(N4) regulates (limits) the risk of loss of liquidity by the bank as a result of placing funds in long-term assets and determines the maximum allowable ratio of the bank's credit claims with the remaining maturity to the maturity date of more than 365 or 366 calendar days, to the bank's own funds (capital) and liabilities ( liabilities) with the remaining term to the maturity date exceeding 365 or 366 calendar days. The bank's long-term liquidity ratio (N4) is calculated using the formula
- KR D - credit claims with a remaining term to the maturity date of more than 365 or 366 calendar days, as well as extended loans;
- K is the capital of the bank;
- OD - obligations (liabilities) of the bank on loans and deposits received by the bank, as well as on the bank's debt obligations circulating on the market with a remaining maturity of more than 365 or 366 calendar days. They are determined by the bank itself on the basis of primary documents.
The maximum allowable value of the H4 standard is set at 120%.
To assess the bank's liquidity, in addition to liquidity ratios, you can also use a system of indicators that, in combination, allow you to assess the state of the bank's liquidity as in this moment time as well as over the medium term.
1. Settlement documents not paid on time due to lack of funds in the bank's correspondent accounts.
Balances of off-balance accounts 90903, 90904.
The presence of non-payments reflected in these accounts means that the bank has problems with making payments and there are delays in customer payments. If the balances on these accounts tend to grow for a long time, then the bank is insolvent and illiquid.
2. The indicator reflects the level of business activity of the bank. It represents the ratio of turnover on correspondent accounts and the bank's cash desk to the net balance asset:
K2\u003d Turnover on the loan of correspondent accounts and cash desks / Net balance asset
This indicator allows assessing the overall level of the bank's business activity and the impact of the risks taken by the bank on its sustainable functioning. If the indicator has a pronounced downward trend, this may indicate a reduction in bank operations and even curtailment of its activities.
The reasons for this state may be the low quality of part of the assets (primarily the loan portfolio), the bank's problems with making customer payments. Actively operating banks have a business activity index above 1.0.
3. The ratio of the net and liquid position of the bank allows you to assess the extent to which the bank attracts loans in the interbank market to cover the liquidity deficit:
K3= Funds on correspondent nostro accounts and on hand / Short-term interbank loans and credits of the Central Bank of the Russian Federation
If , this indicates that the bank covers the liquidity deficit through loans in the interbank market. The systematic use of these short-term resources to cover a long, long-term gap speaks of liquidity problems. In addition, banks analyze counterparties, and access to the interbank market may be terminated for such a bank, then the potential risk of loss of liquidity is transformed into a very real insolvency.
4. The coefficient of the current balance of assets and liabilities of the bank:
K4= Claims (assets) for up to 30 days / Liabilities (liabilities) for up to 30 days
Using the current balance ratio, you can assess the possibility of problems with making payments. If the indicator consistently exceeds 1.0, the probability of a liquidity shortage is practically minimal. If the value of the indicator is consistently below 0.6-0.7 and tends to decrease, then this is a sign of a possible liquidity shortage.
The medium-term balance ratio, which is similar in meaning, allows us to assess the possibility of liquidity problems in the future:
K5= Claims (assets) for up to 180 days / Liabilities (liabilities) for up to 180 days
The considered liquidity ratios make it possible to manage the liquidity of a credit institution both for a certain date and for the future. In addition to the coefficient method for measuring liquidity in Russian practice control mechanism is used cash flows reflecting the movement of not only assets and liabilities, but also off-balance sheet operations of a credit institution.
Bank liquidity- the ability of a credit institution to fulfill its financial obligations in full and on time.
The term “liquidity of an organization” should be distinguished from another financial term - “liquidity”, which means the ability to quickly and with minimal losses transfer one or another asset into cash.
Liquidity financial organization is determined by the ratio of available assets to monetary obligations subject to execution. In doing so, two points must be taken into account.
First, assets can be not only cash, but also other values that, from a financial point of view, have the property of liquidity.
Secondly, the liquidity of the organization is a concept that is closely related to time. There is a current liquidity of the bank - the ratio of assets and forthcoming payments immediately. It can be calculated for any other period. For example, monthly liquidity is the ratio of receipts to payments during the month, etc.
The concept of bank liquidity is opposed to the concept of profitability. Excessively high liquidity reduces the profitability of operations. If the reserves are large, then less cash is used for investments. An extreme case: at the time of the creation of a credit institution, all its funds are on a correspondent account with the Central Bank. Liquidity reaches 100%, and the yield is zero, since investments have not yet been made.
As the bank develops its activities, it attracts money from depositors and issues loans. At the same time, profitability increases and liquidity decreases.
At the same time, at any time, current investors can demand the return of their funds. Thus, excessively low liquidity is associated with the risk of the collapse of a financial institution. To prevent this from happening, regulators introduce liquidity ratios.
There are several sources of bank liquidity provision. Internal funds include own funds - on hand and on correspondent accounts, other assets that can be converted into money over a certain period: loan portfolio, if assigned, securities, etc.
In addition, it is customary to allocate external sources of liquidity: funds that can be quickly attracted if necessary. These are interbank loans, as well as loans from central banks.
In their activities, credit institutions use different methods of liquidity management. In particular, they compile so-called payment calendars that reflect upcoming receipts and write-offs of funds, and calculate payment positions. Situations where cash is temporarily insufficient to meet current financial obligations, despite the fact that total cost assets exceeding total debt are called cash gaps.
Liquid funds include easily, medium and slowly realizable assets of the balance, illiquid - hard to sell. Lack of liquidity indicates a delay in payments for current operations and thus reduces the liquidity of the balance sheet. An excess of liquidity means that current assets are not used efficiently enough.
Illiquidity is the lack of liquid assets. A situation where assets cannot be quickly and easily converted into cash.
The owners of wealth will then compare, in this sense, the lack of "liquidity" of various types of capital equipment as a means of investing wealth with the best available statistical risk-adjusted estimate of their prospective returns. The liquidity premium, as will be shown, is somewhat similar to the risk premium, but somewhat different from it. The difference between them corresponds to the difference between the best probability estimates we can get and the confidence with which we make them ((109) - see footnote J74). When we talked about estimating expected returns in previous chapters, we did not elaborate on how this esti- mate is obtained, and, to avoid the complexity of the arguments, we did not distinguish between asset-to-asset liquidity differences and own-risk differences. It is clear, however, that in calculating our own rate of interest we must take both into account.
Indeed, a lack of liquidity in a product often leads to a lack of "transparency" in the market price, since even small transactions can have a drastic effect on the price of a given instrument. For example, if the price has risen, for example, from 100 to 180 in a sufficiently short period of time, the investor may decide that he wants to sell at that price. However, if the price rise occurred at a low volume of transactions (ie low liquidity), he may find that the number of potential buyers at a higher price is not enough. Having shown the market that he wants to sell, he may find that the price will start to fall as quickly as it went up and, therefore, he will not be able to fill the order to sell. And vice versa, a sign of good market liquidity is when the price does not change when transactions are made in sufficiently large volumes.
The risk of loss of liquidity is associated with the possible failure of the bank to fulfill its obligations or failure to ensure the required growth of assets. In the worst case, the lack of liquidity leads to the insolvency of the bank.
The liquid position of the bank reflects the ratio of its monetary claims and liabilities for a certain period. If over the period (by a certain date) claims on customers (assets) exceed the bank's liabilities, there will be an excess of liquidity, if liabilities, meaning cash outflows, exceed claims (receipts) - a lack of liquidity.
The risk of loss of liquidity and bankruptcy of the bank is closely related to credit, interest and deposit risk. The risk of loss of liquidity arises due to changes in the quality of the bank's assets and liabilities. Lack of liquidity may lead to insolvency (bankruptcy) of the bank.
Associated with the possible failure of the bank to fulfill its obligations or failure to ensure the required growth of assets. When a bank has insufficient liquidity, it often has difficulty covering the deficit by increasing liabilities or by quickly selling without significant losses and at an acceptable price of part of its assets. As a result, the profitability of the bank is affected. In extreme cases, the lack of liquidity leads to the insolvency of the bank.
Lack of liquidity. Another criticism of traditional risk measurements is the assumption that all assets are liquid (or at least that there are no differences in liquidity between assets). Real estate investments are often less liquid than financial assets because transactions are less frequent, transaction costs are higher, and there are far fewer buyers and sellers. It is argued that the less liquidity an asset has, the more risky it is.
Undervalued stocks (firms) 3, 8-9, 11, 19, 24, 147 Lack of liquidity 984-985 Uncertainty 6, 15-16, 35, 56, 143, 228, 1054 Non-parametric test 158-159 Undeveloped reserves of natural resources 29- thirty
A sustainable market is not the same as an "efficient" market, as defined by the EMH. A stable market is a liquid market. If the market is liquid, then the price can be considered as close to "fair". However, the markets are not always liquid. When there is a lack of liquidity, participating investors are willing to take whatever price they can, whether it is fair or not.
Modern advanced systems lack liquidity. Electronic communication systems (E N) depend on the number of participants providing the necessary number of crossed orders, which are the connecting link of financial markets. Even when it comes to large competitive E N, only stocks with high trading volumes attract investor interest and can protect against liquidity risk. Swing traders who use these brokers should avoid trading stocks that do not offer returns.
Thus, if a non-controlling block of shares (minority interest) is valued, and the shares of the enterprise are illiquid (the share is freely unrealizable), then a discount must be made from the value of this block, which already takes into account the degree of control over the enterprise provided by the block of shares, for the lack of liquidity of the shares. Typically, this discount is about 30%. Of course, in different industries (based on specially collected statistics) it may differ from this figure.
Discount for lack of liquidity - 30%
Since the company being valued is a closed joint stock company, its shares are not liquid enough, since they cannot be listed on stock exchanges (where shares are accepted only from those joint stock companies that are registered as open). This means that allowance should also be made for the lack of liquidity of shares (30%).
Discount for lack of liquidity - 31%
Due to the fact that the evaluated block of shares is obviously a control one, the share liquidity factor is insignificant, and a discount should not be made for the lack of share liquidity.
The correct answer is b), since preference shares have more guaranteed dividends than ordinary shares, and voting rights for ordinary shares to their owners small packages(It is precisely when calculating their value that discounts for lack of liquidity are taken into account) still practically do not give them a real impact on the management of the company).
Discount for lack of liquidity - 32%
Discount for lack of liquidity -28%
Such a discount reflects the lack of liquidity of shares of such companies. By extending to them the characteristics of the value of shares really open companies, one must always keep in mind that it is possible to sell the shares of such companies being valued, however, in the final analysis, at an unavoidable discount.
Combined impact of 30% discount for non-controlling nature and 40% discount for lack of liquidity, equal in total to 58% discount from the value of 1 share in the controlling interest (excluding strategic premium, i.e. calculated at 10.00 per 1 share)
The cost of 1 share in a minority stake in the absence of public auctions, i.e. taking into account the discount for lack of liquidity
The assessment of this indicator is ambiguous. The ability of a bank, if necessary, to quickly attract resources from the interbank market and from the central bank at a moderate fee and thereby eliminate a temporary shortage of liquid funds is considered as a sign of high liquidity of the bank. At the same time, a large share of external borrowings indicates the weakness and low liquidity of the bank. Therefore, further analysis
Mandelbrot called the second characteristic the Noah-effect - after the name of the hero of the biblical legend about the Flood. In a technical interpretation, this is the infinite variance syndrome. Such systems are prone to sudden dramatic changes. In a normal distribution, big changes happen because of a lot of small changes. The change in prices is assumed to be continuous. This assumption of continuity in pricing makes portfolio insurance a possible practical strategy for monetary management. The idea was that by using the Black-Scholes option pricing model (or some variation of it), an investor could artificially repeat the choice, constantly balancing between risky assets and cash. This method is plausible insofar as pricing remains continuous, or at least close to it. However, in the case of a fractal distribution, large changes occur as a consequence of a small number of large changes. Large price changes can be discontinuous and sudden. A fractal distribution in the stock market could explain why the October events of 1987 or 1978 or 1929 happened at all. In these markets, the lack of liquidity has caused sudden and discontinuous pricing, as predicted by the fractal model. We have seen with our own eyes in 8 that capital markets have fractal distributions.
The correct answer is c), since, firstly, the capital market method is adequate to assess precisely non-controlling interests in an enterprise; secondly, the share in a Russian limited liability company is illiquid, i.e., if it is smaller, then a discount for a disadvantage is required liquidity thirdly, shares in limited liability companies cannot be placed on the stock market, so that when assessing it is always necessary to make a discount based on the costs of placing on the stock market capital participations in enterprises (rights to participate in income from capital invested in them ).
Is the following statement true?
It is necessary to evaluate 21% of the company's shares with liquid shares. The market value of one share is 102 rubles. The number of shares outstanding is 100,000. The premium for acquired control is 35%. Discount for lack of liquidity - 26%, discount based on the cost of placing shares on the market -15%.
Is the following statement true? The discount for the lack of liquidity of shares takes into account the lack of control over the enterprise by minority shareholders who own low-liquid shares
Lack of liquidity- one of the states of a company (firm, organization), when cash () is in short supply and it is not possible to fully fulfill its obligations.
Lack of liquidity- one of the main problems of the enterprise, implying the difficulty of turning some assets into. In such cases, the assets are classified as illiquid (for example, unsecured loans).
Lack of liquidity: essence
The assessment of each enterprise is based on the analysis of two main parameters - solvency and liquidity. Based on their analysis, it is possible to assess the short-term prospects of the organization in the future. sufficient if the company is able to repay by selling current (current) assets. In the opposite situation, we can talk about low liquidity or its absence.
The liquidity of a company depends on current assets(their type and features). For example, companies with marketable assets are liquid. The predominance of hard-to-realize capital (for example, real estate) can reduce the level of liquidity of the enterprise.
Illiquidity or lack of liquidity- the inability of the organization to cover payment obligations by depositing personal funds or transferring assets to the money supply. Also, when assessing liquidity, the ability to attract loans from outside is assessed.
The overall financial stability largely depends on the company's liquidity. At the same time, the parameter is a certain indicator of the availability of personal (circulating) funds. The maximum or minimum level of liquidity (its absence) is determined by the level of provision (unavailability) of working capital with long-term sources of capital.
The main sign of the organization's lack of liquidity is the excess of the level of liabilities (usually short-term) over current assets. At the same time, the greater the difference, the more difficult it is for the company to get out of the financial "hole". Conversely, in the case of an excess of working capital over liabilities, we can talk about the liquidity of the enterprise.
The minimum volume of current assets and the approximation of their volume to the volume of liabilities of the enterprise indicates a decrease in stability and the risk of future illiquidity. Here, a problem is possible when the company will not be able to cover the existing obligations. The result may be a suspension of activities and.
Lack of liquidity: features of the analysis
When assessing the liquidity (lack of liquidity) of an enterprise, several coefficients are calculated. The main ones should include:
1. Ratio of urgency (absolute liquidity). The calculation of the parameter is performed by a simple method. This is the ratio between cash (cash) and liquid (quickly realizable) short-term assets to accounts payable short-term debt. Through the coefficient, you can understand what part of the debt can be repaid at the time of the balance sheet. The norm is the coefficient - 0.2-0.3. In the case of a decrease in the coefficient, we can talk about the illiquidity of the enterprise.
2. (specified, intermediate). The indicator is calculated as the ratio of three components (accounts receivable, liquid short-term assets, and cash) to short-term accounts payable. According to this parameter, one can judge what part of the debt can be repaid not only through securities and cash, but also through money from the sale of shipped goods (sold works, services provided by the enterprise). The optimal parameter is 1:1. It should be noted that conclusions on the indicator can only be made on the basis of the quality of receivables, that is, financial position debtors and their ability to make timely payment for the goods. The presence of large volumes of doubtful receivables worsens the condition of the enterprise and reduces the overall liquidity.
3. Current liquidity ratio. It is also called the coverage ratio (liquidity). With its help, it is possible to characterize the security of the structure with working capital. The calculation is made as the ratio of the actual price of current assets (funds) to the organization's liabilities (short-term liabilities).
When calculating the parameter, it is worth adjusting the total amount of working capital by deducting VAT on purchased valuables and the amount of expenses for future months. It is also recommended to subtract from the liabilities of future months (periods), the reserves of future payments (expenses), the income of consumption funds.
With the help of the coverage ratio, you can understand whether enterprises cover enough. The optimal indicator is about 2. The lower the parameter, the closer the company is to the point of illiquidity.
4. Working capital ratio. This parameter can be calculated in two ways:
By subtracting non-current assets from sources of personal funds and dividing by current assets;
- by subtracting current liabilities from current assets and dividing the result by current assets.
The optimal coefficient parameter is 0.1. So, if, when calculating for, it fell below two, and the security parameter fell below 0.1, then we can talk about the poor state of the enterprise structure and the importance of taking measures to increase liquidity. If only one of the two conditions is met, an additional assessment is made.
Liquidity analysis based on (taking into account) ratios - the ability to accurately determine the organization's ability to meet obligations, assess the degree of liquidity and the overall level of coverage of obligations by assets. Among the shortcomings, it is worth highlighting the static nature of the calculation, dependence on the industry, the insufficiency of taking into account problematic positions.
Stay up to date with all important United Traders events - subscribe to our
The article presents the main approaches to assessing the financial condition of an enterprise using indicators for assessing liquidity, solvency, financial stability and profitability of an enterprise. The calculation of economic profitability according to Dupont was made, which served as the basis for determining the actual and forecast effect financial leverage. Particular attention is paid to modeling the growth of liquidity of the enterprise.
AT modern conditions most enterprises are characterized by a "reactive" form of activity management, which is a reaction to the current problems of the organization. In this regard, an assessment of the existing financial condition and a timely response to external conditions are possible only with the improvement of financial and economic activity management tools.
In the current and prospective time period, the set of internal, stable features is characterized by content complexity and inconsistency, which determines the need to use various assessment methods and further develop a mechanism for managing the financial condition of the enterprise.
The assessment methods and the mechanism for managing the financial condition of an enterprise are based on the financial analysis, the methodology of which consists of three large interconnected blocks:
analysis of financial position and business activity;
analysis financial results;
Evaluation of possible prospects for the development of the organization.
Among the main approaches to managing financial condition, the most important is the approach based on time duration. The peculiarity of this classification is the identification of the current and prospective assessment of the financial condition.
The current assessment includes the existing financial equilibrium, when the state of finance does not interfere with the functioning of the enterprise. This is possible under the indispensable observance of the following basic conditions:
the required level of efficiency is met if the organization, using the provided capital, covers the costs associated with its receipt;
the liquidity condition is met. In other words, the organization (enterprise) must always be in a state of solvency;
the financial condition of the organization is assessed as stable.
The simultaneous fulfillment of these conditions causes significant difficulties, since, for example, the tasks of achieving the required profitability and liquidity are undoubtedly contradictory. Possible variant compatibility of various goals in modeling financial development will be carried out using the example of Irena LLC.
The holding company LLC Irena was founded in 2005. The main tasks are to assist in the clearance of goods and other warehouses in a number of regions, carried out on the basis of a license to operate as a customs broker. The company has a transport and logistics department, which allows it to provide services for the delivery, placement and consolidation of goods in European warehouses.
One of the most important components of the analysis of the financial condition is the assessment of the financial stability of the organization. When conducting a financial stability analysis, we chose to assess the ability of Irena LLC to repay its obligations and retain ownership rights in the long term.
When studying the structure of stocks, the main attention was paid to the study of trends in such elements as raw materials, work in progress, finished products and goods for resale, goods shipped. The presence in the balance sheet of the article "Accounts receivable, payments for which are expected in more than 12 months after the reporting date" indicates the negative aspects of the organization's work.
To calculate the final values characterizing financial stability, we will evaluate the initial data that had a significant impact on the final indicators (Table 1). According to the conducted grouping, it can be observed that in the company the amounts that determine the value of the functioning capital (CF) and the total value of the main sources of formation of reserves and costs (VI) coincide. At the same time, the total amount of reserves and costs decreased by 323 thousand rubles. in absolute terms.
Table 1. Grouping of articles of financial statementson the basis
financial stability of Irena LLC for 2007–2009. at the beginning of the period
|
Index |
Method of calculation, p. |
Amount, thousand rubles |
Deviations, thousand rubles |
||
|
2007 |
2008 |
2009 |
|||
|
Total inventory and costs (CO) | |||||
|
Functioning capital (CF) |
490 + 590 – 190 | ||||
|
The total value of the main sources of formation of reserves and costs (VI) |
490 + 590 + 610 – 190 | ||||
For a more detailed analysis of financial stability, we calculate the coefficients characterizing financial stability (Table 2).
Table 2. Financial stability ratios of Irena LLC
|
Index |
Method of calculation, p. |
years |
Optimal value |
||
|
2007 |
2008 |
2009 |
|||
|
Capitalization ratio (U1) |
(590 + 690) / (490 – 475 – 465 – 244) |
< 1,5 |
|||
|
Coverage ratio with own sources of financing (U2) |
((490 – 475 – 465 – 244) – 190) / 290 |
> 0,6–0,8 |
|||
|
Financial Independence Ratio (U3) |
(490 – 475 – 465 – 244) / 300 |
> 0,4 |
|||
|
Funding ratio (U4) |
(490 – 465 – 475 – 244) / (590 + 690) | ||||
|
Financial stability ratio (U5) |
(490 – 465 – 475 – 244 + 590) / 300 |
> 0,7 |
|||
|
Capital stock ratio (U6) |
((490 – 465 – 475 – 244) – 190) / 210 |
> 0,6 |
|||
|
Permanent asset index |
190 / (490 – 475 – 465 – 244) | ||||
The capitalization ratio (U1) indicates a high dependence of the organization on external capital. The deviation from the normative value varies from year to year, but exceeds the optimal normative value. Thus, in 2009, the minimum value for the entire study period was 2.88, which is 1.3 higher than the norm (see Table 2).
Thus, we can conclude that Irena LLC raised 2 rubles for 1 ruble of its own funds invested in assets. 88 kop. Favorable is the decrease in the dynamics, since the smaller the value of this coefficient, the less the organization depends on the attracted capital.
The coefficient of provision with own sources of financing (U2) shows that 25% of current assets are financed from own sources. Degree of provision with own working capital Irena LLC is below the norm in 2009 by 0.35 points. It should be noted that the minimum value for this coefficient must be greater than or equal to 0.1. In the study period, there is an excess of this value in 2007 by 0.14 points, in 2008 - by 0.18 points. A favorable trend is the growth of indicators in dynamics, since the high value of the indicator allows us to conclude that the organization does not depend on borrowed sources of financing in the formation of its working capital.
The financial independence ratio (U3) is also below the norm. However, the growth of this indicator is a positive trend and suggests that, from a long-term perspective, the organization will become less and less dependent on external sources of funding.
The funding ratio (U4) indicates that the share of own funds in the total amount of funding sources in 2009 amounted to 35%. A sufficiently low value characterizes the enterprise's policy as highly dependent on external sources.
The financial stability ratio (U5) does not exceed the normative value over the years. This trend is quite unfavorable, since this is the most important ratio, and it shows that in 2009 only 26% of the balance sheet assets were formed from sustainable sources. The value of the coefficient does not coincide with the value of the financial independence coefficient, which allows us to conclude that Irena LLC does not use long-term loans and borrowings.
The ratio of material reserves with own funds (U6) shows that in 2009 the reserves and costs are completely formed at the expense of own funds. This indicator indicates an insignificant share of reserves in the structure of assets.
The fixed asset index has been declining over the years, and in 2009, compared to 2007, the reduction was 9 points. This coefficient shows that the share of immobilized (dead) funds in own sources is declining.
Analyzing the business activity of the enterprise (Table 3), it should be noted that all indicators in dynamics demonstrate a favorable growth trend.
Table 3. Indicators of business activity (turnover) of Irena LLC
|
Index |
2007 |
2008 |
2009 |
|
Turnover of fixed assets | |||
|
Turnover of current (current) assets | |||
|
Turnover of all assets |
In close interdependence with the concept of "business activity" is the economic content of the analysis of liquidity and solvency and profitability of the enterprise.
For a detailed analysis of the solvency of the enterprise, we will analyze in dynamics the absolute and relative structural shifts in the current assets of the enterprise.
As noted above, the analysis of the liquidity of the balance sheet consists in comparing the funds for an asset, grouped by the degree of decreasing liquidity, with the sources of formation of assets for liabilities, which are grouped by the degree of maturity.
Using the balance sheet liquidity analysis, we will assess changes in the financial situation in the organization in terms of liquidity.
Let's compare relative liquidity indicators in dynamics for 2007-2009. Analysis of the liquidity of the balance is carried out according to the table. 4. The balance sheet of Irena LLC is not absolutely liquid (Tables 4–6).
Table 4. Liquidity analysis of the balance sheet of Irena LLC at the end of the year for 2007–2009
|
Assets |
2007 |
2008 |
2009 |
Passive |
2007 |
2008 |
2009 | |
|
Most liquid assets (А1) |
Most urgent liabilities (P1) | |||||||
|
realizable assets (A2) |
Short term liabilities (P2) | |||||||
|
Slowly realizable assets (А3) |
Long term liabilities (P3) | |||||||
|
realizable assets (А4) |
Permanent liabilities (P4) | |||||||
The first condition (A1 is greater than or equal to P1) for the period under study is fulfilled due to the absence of the most urgent obligations in the organization. The second (A2 is greater than or equal to P2) is not fulfilled due to the lack of fast-moving assets (A2) in the enterprise.
The third balance liquidity condition (A3 is greater than or equal to P3) is fulfilled in dynamics due to the absence of long-term liabilities.
The fourth condition (A4 is less than or equal to P4), which characterizes the minimum financial stability, is not met for the entire period of the study.
To determine the current situation and prospective trends in balance sheet liquidity, we calculate the amount of surplus and deficit for each of the analyzed groups (Table 5).
Table 5. Payment surplus (+) or deficiency (-)
liquidity balance of Irena LLC at the end of the year for 2007–2009.
|
Method of calculation |
Amount of payment surplus (+) or deficiency (-) |
||
|
2007 |
2008 |
2009 |
|
Comparison of the liquidity result for the first two groups characterizes the current liquidity. Over the period, the payment surplus for the first group decreased, which significantly reduces the liquidity of the balance sheet in the event of short-term liabilities (Table 5).
In the second group, the payment deficit decreased by 12,230 thousand rubles in dynamics, which, of course, with an overall negative picture, is a positive trend.
Prospective liquidity is characterized by a payment surplus or deficiency in the third group. During the study period, the payment surplus for the third group at Irena LLC increased by 724 thousand rubles.
Since, as noted above, the liquidity of the balance sheet and the liquidity of the enterprise are significantly different concepts, it is necessary to analyze the liquidity of the enterprise using the coefficient method (Table 6).
As can be seen from the data in Table. 6, in Irena LLC the values of the current and quick liquidity ratios are significantly lower than the recommended ones, and the absolute liquidity ratio at the end of the study period decreased by 0.04 points. The decline in dynamics can be assessed negatively.
A signal indicator of the financial condition of the organization is the coefficient of maneuverability of equity capital (SC).
Table 6. Liquidity ratios
and solvency of Irena LLC for 2007–2009.
It shows how much of the functioning capital is immobilized in inventories and long-term receivables. The decrease in the indicator in dynamics is a positive fact. The increase in cash is positive. The presence and increase in short-term financial investments should also be assessed positively, as the structure of current assets becomes more liquid.
Profitability assessment, in turn, shows high level unprofitability in 2007 and growth of profitability in dynamics for 2008–2009. (Table 7).
The profitability (loss) ratio of assets in 2007 reflects the amount of loss in the amount of 37.7 rubles per each ruble of the organization's assets. There is a positive trend in dynamics. So, in 2009 the company received 2 rubles. 13 kop. profit per ruble of assets.
The return on equity ratio in 2009 shows that the company received 8 rubles. 29 kop. profit for every ruble of the organization's own capital.
Table 7. Profitability (loss) ratios of Irena LLC
In 2007, the company received a loss equal to 312 rubles. 72 kop. for 1 ruble of own capital.
There is also a positive trend in the return on sales ratio, which in 2009 is equal to 5.28%. For comparison: the coefficient in 2007 is negative and shows the amount of loss in the amount of 26 rubles. 84 kopecks per each ruble of sales.
The analysis performed showed the presence of significant issues that are relevant for the enterprise at the moment, reflected in the operating and financial activities. To solve the existing problems, it is advisable to improve the financial mechanism.
The analysis of the financial condition revealed the existing trends in the mechanism of financial stability management. The negative point is the low financial stability of the enterprise and the imperfection of the financial mechanism of its management.
The consequences of financial instability for Irena LLC in the future can be very significant. A situation is becoming real in which the enterprise will be dependent on creditors, it is threatened with the loss of independence.
The reasons for the current situation are as follows:
1) consistently low volumes of profits;
2) management problems associated with the irrational management of the financial mechanism in the enterprise.
In this regard, it is advisable to focus on various aspects of the financial and operational activities of Irena LLC.
The feasibility of attracting borrowed funds in the formation financial strategy is an ambiguous issue. In this case, we offer the company the following forecast options.
Let us consider the effect of increasing financial stability through the use of the effect of financial leverage, which shows by what percentage the return on equity will change due to the use of borrowed funds. This indicator determines the boundary of the economic feasibility of attracting borrowed funds.
In turn, we calculate the return on assets using the Dupont formula.
We will transform the formula of economic profitability (ER) by multiplying it by Turnover / Turnover 1 = 1. Such an operation will not change the profitability value, but two most important elements of profitability will appear: commercial margin (CM) and transformation ratio (CT).
where EBIT - operating profit - an analytical indicator equal to the amount of profit before interest on borrowed funds and taxes;
Turnover - the sum expression of proceeds from sales and non-operating expenses, thousand rubles;
KM - margin ratio;
CT - transformation ratio.
In our case, the economic profitability is 1.9% (ER = 442 / (25,585 + 20,369) / 2 × 76,596 / 76,596 = 442 / 76,596 × 100 × 76,596 / 22,977.5).
A margin ratio of 0.57% shows that every 100 rubles. turnover give 0.57% of the result.
The transformation ratio shows that each ruble of the asset is transformed into 3 rubles. 30 kop.
Thus, the actual profitability is at a very low level, which, even without preliminary calculations, indicates the inexpediency of attracting borrowed funds.
Let's test our hypothesis by calculating the financial leverage.
The tax corrector equal to 0.8 (TC is found by substituting the EGF (1 - 0.2) into the first part of the formula) shows that the effect of financial leverage in our case does not significantly depend on the level of income taxation.
In addition, the allocation of three components of the effect of financial leverage allows you to purposefully manage it in the process of financial activity of the organization.
The financial leverage ratio (LC / LC) amplifies the positive or negative effect obtained through the differential.
EGF \u003d (1 - 0.2) × (1.9% - 0%) × 0 / 5196 \u003d 0.
The calculation showed the absence of the effect of financial leverage, since there is no use of a paid loan. The value of the indicator, equal to 0, indicates that any increase in the financial leverage ratio will cause a zero increase in the return on equity.
The average interest rate for a loan is 15% per annum. In this case, for the positive effect of financial leverage, the company needs to increase the return on assets to 16%, that is, 16 times. Then the level of profit received from the use of assets (economic profitability) will be greater than the cost of raising and servicing borrowed funds.
Thus, the enterprise, in order to increase its solvency and growth net profit remaining at the disposal of the enterprise, it is advisable to pay special attention to the growth of profitability from operating activities.
Management of liquidity (liquidity) of the enterprise and profitability (profitability) is the most important aspect of the financial strategic development of the enterprise under study. In this regard, the operating activities management mechanism and liquidity modeling of Irena LLC acquire the greatest importance. We predict changes in revenue using the extrapolation smoothing method (Table 8).
A graphical representation of the predicted value is shown in the figure.
Table 8. Forecast of changes in revenue by extrapolation smoothing
|
years |
Revenue, thousand rubles |
|
Forecast (optimistic) |
Least Squares Revenue Forecast (Linear Extrapolation Smoothing)
The trend equation constructed using the least squares method has the following form:
y = 4585x + 66239.
The calculated equation indicates a positive growth in revenue under given conditions. The revenue forecast was made in order to identify the prospects for the development of the enterprise in case of favorable trends.
With regard to improving the mechanism of financial management, as well as to correct the current situation and achieve the forecast values, the management of the enterprise should take measures to increase its own capital, which is possible through liquidity modeling. The basis of the model is the assumption that the main element of equity is profit growth, since profit creates a basis for self-financing and will be a source of repayment of the company's obligations to the bank and other creditors, which will reduce short-term liabilities and increase liquidity.
To achieve this goal, it is necessary to increase the turnover of the company's assets already in 2010, for which purpose it is necessary to increase sales and provide discounts for quick payment. The calculation of the size of the discount is presented in Table. 9.
Table 9. Modeling the size of the discount for fast payment for goods of Irena LLC
|
Index |
Discount for prepayment, % |
No discount, 10 days delay |
||
|
Inflation (4% per month) | ||||
|
The coefficient of decline in the purchasing power of money |
1 / 1,026 = 0,975 |
|||
|
Losses from inflation with every 1 thousand rubles. implementation |
1000 – 975 = 25 |
|||
|
Losses from the provision of discounts from each 1 thousand rubles. |
1000 x 0.1 = 100 |
1000 x 0.05 = 50 |
1000 x 0.02 = 20 | |
|
Income from alternative investments - 2% per month |
900 x 0.02 x 0.975 = 17.55 |
950 x 0.02 x 0.975 = 17.55 |
980 x 0.02 x 0.975 = 17.55 | |
|
Payment of a bank loan - 18% per annum (thousand rubles) |
1000 x 0.18 / 12 = 15 |
|||
|
100 – 17,55 = 82,45 |
50 – 18,525 = 31,475 |
20 – 19,11 = 0,89 | ||
The proposed option for improving the financial mechanism is a necessary condition not only for the analyzed enterprise, but also for an enterprise of any organizational and legal form, since it is a central part of the economic mechanism, which is explained by the leading role of finance in the sphere of material production.
L. S. Sokolova,
cand. economy Sciences
