Current activity any company in the implementation of a specific investment project is associated not only with production (operational), but also with financial risk. The latter is determined primarily by the structure of its sources. financial resources and, in particular, their ratio on the basis of own or borrowed capital. The situation when a company for the implementation of a specific investment project is not limited to its own capital, but attracts funds from external investors, is quite natural.

By attracting borrowed funds, the investment project manager gets the opportunity to control larger flows Money and, consequently, implement more significant investment projects. At the same time, it should be clear to all borrowers that there are well-defined limits to debt financing in general and investment projects in particular. These limits are mainly determined by the increase in costs and risks associated with attracting borrowed capital, as well as a decrease in the company's creditworthiness in this case.

What should be the optimal ratio between own and attracted long-term financial resources when implementing a specific investment project, and how will this affect the company's profit? The answer to this question can be obtained using the category of financial leverage, financial leverage, the strength of which is determined precisely by the share of borrowed capital in the total capital of the company.

Financial leverage - potential opportunity to influence the net profit of an investment project (company) by changing the volume and structure of long-term liabilities; by varying the ratio of own and borrowed funds in order to optimize interest payments.

The issue of the advisability of using borrowed capital is directly related to the effect of financial leverage: an increase in the share of borrowed funds can increase the return on equity.

Quite convincingly and clearly the effect of financial leverage can be demonstrated using the famous DuPont formula. (Dupont,) widely used in international financial management to assess the level of return on equity of a company (Return on equity , ROE):

where is the profitability ratio of sales; – asset turnover ratio; (Return on assets) is the rate of return on assets; IL- financial leverage.

It follows from this formula that the rate of return on capital ( ROE) will depend on the amount of financial leverage determined by the ratio of the company's own and borrowed funds. It is obvious, however, that with an increase in financial leverage, the return on capital rises only if the return on assets ( ROA) will exceed the interest rate on borrowed funds. Although this statement is understandable and on a purely intuitive level, we will try to formalize the relationship between financial leverage and return on assets by answering the question under what conditions the impact of financial leverage on ROE turns out to be positive?

For this we introduce the following notation:

N1 - net profit; GI - earnings before interest and taxes (balance sheet income - EBIT); E - equity; D - borrowed capital; j – interest rate on capital; t- tax rate.

Or, taking into account that the quantity is the so-called operating room (production ) profitability , can be written

where is the adjusted interest rate on capital for

after paying taxes.

The resulting expression ROE is very meaningful, as it clearly shows that the impact of financial leverage, the strength of which is determined by the ratio D to E depends on the ratio of two quantities r And i.

If the operating rate of return on assets exceeds the adjusted rate of interest on debt capital, the company receives a return on its invested capital in excess of the amount it must pay creditors. This creates an excess of funds that is distributed among the shareholders of the company, and, therefore, increases the rate of return on capital. (ROE). If the operating return on assets is less than the adjusted borrowing rate, then the company is better off not borrowing these funds.

An illustration of the influence of the interest rate level on the return on equity of a company in terms of financial leverage is given in Table. 6.14.

Table 6.14

The impact of the interest rate onROE

In the effect of financial leverage, as follows from the above, two components can be distinguished.

Differential – the difference between the operating profitability of assets and the adjusted (by the value of the income tax rate) interest rate on borrowed funds.

Shoulder financial leverage, determined by the ratio between debt and equity capital.

It is obvious that between these components there is an inextricable, but at the same time contradictory relationship. With an increase in the amount of borrowed funds, on the one hand, the leverage of the financial leverage increases, and on the other hand, as a rule, the differential decreases, since lenders tend to compensate for the increase in their financial risk by increasing the price of their "commodity" - loan rates. In particular, there may come a time when the differential becomes negative. In this case, the effect of financial leverage will lead to very negative consequences for the company implementing the corresponding investment project.

Thus, a reasonable financial manager will not increase the leverage of financial leverage at any cost, but will regulate it depending, firstly, on the differential and, secondly, on the predicted market conditions.

The method of assessing the financial leverage considered above, while remaining the most well-known and used, is at the same time not the only one. For example, in an American school financial management A widely used approach involves comparing the rate of change in net income (GM) with the rate of change in earnings before interest and taxes ( TGI ). In this case, the level of financial leverage (LG) can be calculated by the formula

This formula answers the question of how many percent net income will change if there is a change of one percent in earnings before interest and taxes. Denoting - interest on loans and borrowings, a t is the average tax rate, we modify this formula into a more computationally convenient form

Thus, the coefficient FL receives another interesting interpretation - it shows how many times the income before interest and taxes exceeds taxable income (67 - ). The lower limit of the financial leverage coefficient is one. The greater the relative amount of borrowed funds attracted by the company, the greater the amount of interest paid on them (), the higher the level of financial leverage, the more variable net profit, which, with other equal conditions leads to greater financial instability, expressed in a certain unpredictability of the amount of net profit. Since the payment of interest, unlike, for example, the payment of dividends, is mandatory, then with a relatively high level of financial leverage, even a slight decrease in profits can have a very Negative consequences compared to a situation where the level of financial leverage is low.

Production and financial leverage

The considered production and financial leverage can be generalized by the category of production and financial leverage, which describes the relationship between revenue, production and financial costs, and net profit.

As a reminder, operating leverage measures the percentage change in earnings before interest and taxes for each percentage change in sales. And the leverage ratio measures the percentage change in net income for each percentage change in earnings before interest and taxes. Since both of these measures are related to percentage changes in earnings before interest and taxes, we can combine them to measure total leverage.

Total leverage ratio ( TL) is the ratio of the percentage change in net profit to the unit percentage change in sales

If we multiply and divide the right side of this equation by the percentage change in earnings before interest and taxes ( TG1 ), then we can express the total leverage in terms of operating leverage ( OL ) and financial (FL) leverage

The relationship between indicators of operational and financial leverage for a certain conditional company, dollars, is given below:

The economic interpretation of the leverage indicators calculated above is as follows: given the structure of sources of funds and conditions of production and financial activities that have developed in the company:

• a 10% increase in output would result in a 16% increase in earnings before interest and taxes;
• a 16% increase in earnings before interest and taxes would result in a 26.7% increase in net income;
• a 10% increase in production will result in a 26.7% increase in the company's net profit.

Practical actions to manage the level of leverage are not amenable to rigid formalization and depend on a significant number of factors: sales stability, the degree of saturation of the market with relevant products, the availability of reserve debt capital, the pace of company development, the current structure of assets and liabilities, the tax policy of the state in relation to investment activities, the current and the prospective situation in the stock markets, etc.

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 profits received due to stabilization. fixed costs for the entire production volume.

The effect of production leverage is calculated by the formula:

, Where

P- profit of the enterprise for the 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 the 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 financial risk companies.

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 through 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 much earlier financial stability and become unprofitable than an enterprise that preferred to finance its activities from its own 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.

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 a 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 (32)

Production costs are the costs of producing and selling products ( total 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 by the ratio of the growth rate of gross profit DП % (before interest and taxes) to the growth rate of sales volume in natural or conditional natural 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.

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, at the third enterprise, a higher degree 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. 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% (33)

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 an environment of high financial leverage can lead to a significant change in net income, which is dangerous during a decline in production.

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 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.

Leverage(eng. - leverage) is a key factor in the company's activities, a small change in which can lead to a significant change in performance indicators.

There are two types of leverage: production (or operating) and financial. Production leverage- the potential to influence the profit from sales by changing the structure of costs and output. Production leverage is greatest in companies that have a high share of fixed costs in the cost structure of products (works, services). If a company has high operating leverage, then its sales profit is very sensitive to changes in sales volumes.

The effect of production leverage is that any change in sales revenue leads to an even greater change in profits. Force of influence (Effect) production leverage calculated by the formula

where EPL is the effect of production leverage; MD - marginal income(profit); - revenue from sales.

If a company with an EPL value of 7 increases its sales revenue by, say, 1%, then its sales profit will increase by 7%. Conversely, with a reduction in sales revenue, for example, by 3%, its sales profit will decrease by 21%. Thus, the effect of production leverage shows the degree of entrepreneurial risk. The greater the operating leverage, the greater the risk. In practice, the following dependencies appear:

• 1) if the company operates near the break-even point, it has a relatively large share of changes in profits or losses with changes in sales volumes;
• 2) for profitable companies with a large volume of sales, high profits can be observed even with a slight increase in profitability;
• 3) a company with high rate operating leverage, with sharp fluctuations in sales volumes is exposed to a significantly greater degree of risk than with stable sales volumes;
• 4) the more specific gravity fixed costs in the total cost of the company, the higher the strength of the operating leverage at a certain volume of production, the greater the risk of reducing production volumes;
• 5) work with high operating lever can be companies that provide significant sales volumes and are confident in the prospective stable demand for their products, works or services.

In addition, to analyze the relationship between profit and the ratio of equity and debt capital, financial leverage or financial leverage can be used. Financial leverage allows you to potentially influence the company's profit by changing the volume and structure of equity and debt capital. It is calculated according to the formula

where FL is financial leverage; – growth rate of net profit; - Gross profit growth rate.

The excess of the growth rate of net profit over the growth rate of gross profit is ensured by the effect of financial leverage (lever), one of the components of which is its leverage. By increasing or decreasing the leverage, depending on the prevailing conditions, you can influence the profit and return on equity. Leverage ratios reflect the relative size of claims on the company's assets by its co-owners and creditors. Borrowed money allows you to multiply the financial strength of the borrower by investing in projects that can bring profit. 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.

where - the overall profitability of the enterprise, calculated as the ratio of net profit to the average annual amount of the total capital and expressed as a percentage; – weighted average interest rate on borrowed funds; PFR is the leverage of financial leverage as the ratio of borrowed and own funds.

The effect of financial leverage shows by what percentage the return on equity increases by attracting borrowed funds into circulation:

The economic meaning of the positive value of the effect of financial leverage is that an increase in the return on equity can be achieved by expanding debt financing (restructuring capital and debts). At the same time, excessive borrowing can have both positive and negative consequences for the company.

7.1. Theoretical introduction

The asset management process aimed at increasing profits is characterized by the category leverage. Leverage is understood as a factor, a small change in which can lead to a significant change in performance indicators. In practice financial analysis consider three types of leverage.

Industrial Leverage is a potential opportunity to influence gross income by changing the cost structure and output volume. The level of production leverage (Ul) is usually measured by the following indicator:

where TGI is the rate of change gross income(in percentages);

TQ - the rate of change in the volume of sales (in percent).

Using the method of calculating the break-even point (4.3), (4.4) allows you to transform the formula (5.1):

(7.2)

Where c is the specific marginal income;

Q is the volume of sales in physical terms;

GI is gross income.

For an enterprise with a high level of production leverage, a slight change in the volume of production can lead to a significant change in gross income. A high value of the indicator is typical for enterprises with a relatively high level of technical equipment: the higher the level of semi-fixed costs in relation to the level of variable costs, the higher the level of production leverage, which is commensurate with the high production risk.

F financial leverage- this is a potential opportunity to influence the profit of the enterprise by changing the volume and structure of long-term liabilities. The level of financial leverage (Ufl) characterizes the relative change in net profit with a change in gross income

where TNI is the rate of change in net profit (in percent).

Using the method of determining the break-even point (6.3), (6.4), the formula can be transformed

where In - interest on loans and borrowings;

T is the average tax rate.

The Ufl coefficient shows how many times gross income exceeds taxable profit. The lower limit of the coefficient is one. The greater the relative amount of borrowed funds, the greater the amount of interest paid on them, the higher the level of financial leverage, which is an indicator of high financial risk.

Production and financial leverage are summarized by the category production and financial leverage(Ul), the level of which, as follows from formulas (7.1) - (7.4), can be estimated by the following indicator:

. (7.5)

Production and financial leverage characterizes the relationship of three indicators: revenue, production and financial costs, as well as net profit.

Task 1. Analyze the level of production leverage with an increase in production from 70 units. up to 77 units, if the product price is 3 thousand rubles, variable costs per unit of production are 1.4 thousand rubles, fixed costs are 81 thousand rubles.

Solution.

1. Calculate the amount of gross income (thousand rubles) with a production volume of 70 units, using the formula (6.3):

2. Calculate the amount of gross income (thousand rubles) with a production volume of 120 units:

3. Level of production leverage:

With an increase in production by 10%, gross income will increase by 36%.

Task 2. Determine the level of financial leverage with an increase in gross income from the base level of 500 thousand rubles. on 10 %. The total amount of the company's capital is 200 thousand rubles, including borrowed capital - 25%. The interest paid for the use of borrowed capital is 15%. The income tax rate is 24%.

Solution.

1. The amount of borrowed funds is 50 thousand rubles. (200×0.25).

2. Expenses for the use of borrowed funds (thousand rubles):

In = 50 × 0.15 = 7.5.

3. The level of gross income, taking into account an increase of 10%:

GI 2 \u003d 500 × 1.1 \u003d 550 (thousand rubles).

4. Determine the profit before tax (Pr) and the amount of income tax T (thousand rubles) with a gross income of 500 thousand rubles:

Pr 1 \u003d GI 1 - In \u003d 500 - 7.5 \u003d 492.5; T 1 \u003d Pr × 0.24 \u003d 118.2.

5. Determine the profit before tax (Pr) and the amount of income tax T (thousand rubles) with a gross income of 550 thousand rubles:

Pr 2 \u003d GI 1 - In \u003d 550 - 7.5 \u003d 542.5; T 2 \u003d Pr × 0.24 \u003d 130.2.

6. Calculate the net profit in both cases (thousand rubles):

NI 1 \u003d Pr 1 - income tax \u003d 492.5 - 118.2 \u003d 374.3;

NI 2 \u003d Pr 2 - income tax \u003d 542.5 - 130.2 \u003d 412.3.

7. The level of financial leverage according to the formula (7.4) is equal to:

Thus, with an increase in gross income by 10%, net profit increases by 10.2%.

7.3. Tasks for independent work

Task 1. Determine the production leverage if the company produced 40 units of production and sold it at a price of 7 rubles. At the same time, variable costs for the entire volume of production amounted to 120 rubles, and fixed costs 100 rubles.

Task 2. The company produced 20 units of products and received revenue in the amount of 140 rubles. Variable costs amount to 34 rubles, fixed costs - 34 rubles. Determine the marginal income and the level of production leverage .

Task 3. In June, the enterprise produced 5,000 units of products at a price of 180 rubles. Are common fixed costs amounted to 120,000 rubles. Specific variable costs - 120 rubles. In July, a 10% increase in gross income was planned. Determine the level of volume of implementation to achieve the goal.

Task 4. The work of the enterprise is characterized by the following parameters: revenue is 1,200 rubles, gross income - 340 rubles, variable costs - 440 rubles. What will lead to a change in gross income to a greater extent: a decrease in variable costs by 1% or an increase in output by 1%? Determine the absolute and relative change of the parameter.

Task 5. The price of a unit of production is 1 ruble, sales are 10,000 units, variable costs are 7,000 rubles, fixed costs are 7,000 rubles. Which will shift the break-even point more: a 10% reduction in fixed costs or a 10% reduction variable costs? Calculate the value of the critical output in both cases, as well as the current value of the break-even point.

Task 6. The company's revenue amounted to 700 rubles. Variable costs are equal to 200 rubles. for the entire production. Gross income is 450 rubles. What will change the gross income to a greater extent: a decrease in variable costs by 1% or an increase in output by 1%.

Task 7. The enterprise produces 100 thousand units of products. Selling price - 2,570 rubles, average variable costs - 1,800 rubles, fixed costs - 38.5 thousand rubles. Conduct a sensitivity analysis of gross income to the following changes:

10% price change. By how many units should the volume of sales be reduced without loss of profit?

10% change in variable costs;

10% change in fixed costs;

10% increase in sales volume.

Task 8. Conduct a financial risk analysis with different capital structures. How does the return on equity change when gross income deviates from the baseline of 6 million rubles. on 10 %?

Task 9. Calculate the level of production and financial leverage for enterprise A with an increase in production from 80 to 88 thousand units. Product price - 3 rubles, specific variable costs - 2 rubles, fixed costs - 30,000 rubles, interest on loans and borrowings - 20,000 rubles.