financial leverage

financial leverage(shoulder of financial leverage, credit leverage, leverage, financial leverage) is the ratio of borrowed capital to equity (in other words, the ratio between borrowed and equity capital). Also, financial leverage or the effect of financial leverage is the effect of using borrowed funds in order to increase the size of operations and profits without having sufficient capital for this. The size of the ratio of borrowed capital to equity characterizes the degree of risk, financial stability.

Financial leverage can only arise if the trader uses borrowed funds. The cost of borrowed capital is usually less than the additional profit it provides. This additional profit is added to the return on equity, which allows you to increase its profitability.

In the commodity, stock and currency markets, the concept financial leverage transforms into margin requirements- the percentage of funds that a trader must have on his balance sheet to conclude a transaction to the total value of the transaction being concluded. Typically, the commodity market requires security of at least 50% of the total transaction amount, that is, to conclude a contract for $ 200, the trader must have at least $ 100. In the market of derivative financial instruments or currency exchange, the conclusion of, for example, a futures contract obliges to pay warranty support in the amount of 2 to 15 percent of the value of the contract, that is, to conclude a contract for $ 200, it is enough to really have available from 4 to 30 dollars.

In the Russian stock market, under the leverage of one to five, they often mean the ratio own funds(collateral) to the loan provided, that is, the client borrows funds from the broker 5 times more than their own, and then directs the entire amount available to conclude a transaction. The client's funds become 6 times more than it was before taking the loan. In this case, the margin requirements are not 20%, but 16.67%.

The use of increased leverage not only increases the opportunity to make a profit, but also increases the degree of risk of such an operation.

When calculating the EGF - the effect of financial leverage - the leverage of the financial leverage (for the financial analysis of an enterprise, this is the ratio of borrowed capital (LC) to equity capital (SC)) is multiplied by the differential. Simplified calculation formula taking into account inflation: Efr = ((1 - T)(ER - 1.8×SR) - (SRSP - 1.8×SR))×LC/SC, where Efr is the effect of financial leverage; T is the profit tax rate (see clause 1, article 284 of the Tax Code of the Russian Federation), which can be calculated as the ratio of tax deductions to profit before tax; ER - economic profitability of assets; SRSP is the average calculated interest rate on loans, CP is the average annual refinancing rate.

Mass trading using the effect of financial leverage is a potential precondition for a financial crisis. One notable example of this is the collapse of the British Bering Bank, one of the oldest and largest banks in the world.

see also

Notes

Links

• Kiperman G. Under what conditions is a loan for current needs beneficial? // Financial newspaper. Regional release. - 2007. - № 40.

Wikimedia Foundation. 2010 .

See what "Financial leverage" is in other dictionaries:

Combined impact on earnings from equity and debt financing. In the European model, financial leverage is calculated as the ratio of the total debt of the enterprise to the total amount of equity. AT… … Glossary of business terms

Combined impact on earnings from equity and debt financing. Economic dictionary. 2010 ... Economic dictionary

Combined impact on earnings from equity and debt financing. Raizberg B.A., Lozovsky L.Sh., Starodubtseva E.B. Modern economic dictionary. 2nd ed., rev. M .: INFRA M. 479 s .. 1999 ... Economic dictionary

financial leverage- (leverage) see Leverage ... Economic and Mathematical Dictionary

Impact on earnings from equity and debt financing… encyclopedic Dictionary economics and law

financial leverage- ratio between different ways company financing, such as debt and equity. The higher the leverage, the higher the interest expense on the income statement. If the interest expense... Glossary of terms for the examination and management of real estate

financial leverage- the cumulative impact on the level of profits due to equity and debt financing ... Dictionary of economic terms

Determined by degree of use borrowed money enterprises. Calculations show that an increase in the share of borrowed funds in financing liabilities increases the impact of … Glossary of Crisis Management Terms

Financial leverage, Financial leverage, Financial dependence (FINANCIAL LEVERAGE)- The ratio of borrowed and own funds of the enterprise. AT Russian Federation There is no standard definition of this concept. Financial leverage as a ratio of equity and debt means the potential to influence … Glossary of terms for management accounting

financial leverage- financial leverage financial dependence The ratio of borrowed and own funds of the enterprise. In the Russian Federation, there is no normative definition of this concept. Financial leverage as the ratio of equity and debt capital ... ... Technical Translator's Handbook

Books

• Financial leverage for good. New Horizons for Philanthropy and Social Investment, Lester Salamon. Quote " Financial crisis… made socially transformative investment attractive.” Lester Salamon
• Financial Leverage for Good: New Horizons for Philanthropy and Social Investing, Lester Salamon. The book is about modern innovative mechanisms and new opportunities for financing projects in the field of charity and social entrepreneurship, right now, when a breakthrough in…

Financial assessment of the company's stability indicators is essential for the successful organization and planning of its activities. Financial leverage in this analysis is used quite often. It allows you to evaluate the capital structure of the organization and optimize it.

The investment rating of the enterprise, the possibility of development, and the increase in the amount of profit depend on this. Therefore, in the process of planning the work of the analyzed object, this indicator plays an important role. The method of its calculation, the interpretation of the results of the study deserve special attention. The information obtained during the analysis is used by the company's management, founders and investors.

General concept

Financial leverage is an indicator that characterizes the degree of risk of a company with a certain ratio of its borrowed and own sources of financing. Translated from English, "leverage" means "lever". This suggests that when one factor changes, other indicators associated with it are affected. This ratio is directly proportional to the financial risk of the organization. This is a very informative technique.

In a market economy, the indicator of financial leverage should be considered not from the point of view of the balance sheet valuation of equity capital, but from the standpoint of its real valuation. For large enterprises that have been successfully operating in their industry for a long time, these indicators are quite different. When calculating the financial leverage ratio, it is very important to take into account all the nuances.

General meaning

Applying a similar technique at the enterprise, it is possible to determine the relationship between the ratio of own and borrowed capital and financial risk. Using free sources of business support, you can minimize the risks.

The stability of the company is the highest. By using paid debt capital, a company can increase its profits. The effect of financial leverage implies the determination of the level of accounts payable, at which the return on total capital will be maximum.

On the one hand, using only their own financial sources, the company loses the opportunity to expand its production, but on the other hand, the level of paid resources in overall structure balance sheet will lead to the inability to repay their debts, reduce the stability of the enterprise. Therefore, the leverage effect is very important when optimizing the balance sheet structure.

Calculation

Kfr \u003d (1 - H) (KRA - K) Z / S,

where H is the income tax coefficient, KRA is the return on assets, K is the rate for using the loan, Z is borrowed capital, and C is equity.

KPA = Gross Profit/Assets

In this technique, three factors are connected. (1 - H) - tax corrector. It does not depend on the enterprise. (KRA - K) - differential. C/S is financial leverage. This technique allows you to take into account all conditions, both external and internal. The result is obtained as a relative value.

Description of the components

The tax corrector reflects the degree of influence of a change in income tax percentages on the entire system. This indicator depends on the type of activity of the company. It cannot be lower than 13.5% for any organization.

The differential determines whether it will be profitable to use the total capital, taking into account the payment of interest rates on loans. Financial leverage determines the degree of influence of paid sources of financing on the effect of financial leverage.

With the overall impact of these three elements of the system, it was found that the normatively fixed value of the coefficient is determined in the range from 0.5 to 0.7. The share of credit funds in the total structure of the balance sheet currency should not exceed 70%, otherwise the risk of debt default increases, and financial stability decreases. But when it is less than 50%, the company loses the opportunity to increase the amount of profit.

Method of calculation

Operational and financial leverage is an integral part of determining the efficiency of the company's capital. Therefore, the calculation of these values ​​is mandatory. To calculate leverage, you can use the following formula:

FR \u003d KRA - RSK, where RSK - return on equity.

For this calculation, it is necessary to use the data that are presented in the balance sheet (form No. 1) and the income statement (form No. 2). Based on this, you need to find all the components of the above formula. Return on assets is as follows:

KRA = Net profit / Balance sheet

KRA = s. 2400 (f. No. 2)/s. 1700 (f. No. 1)

To find the return on equity, you need to use the following equation:

RSK = Net profit / Equity

RSK = s. 2400 (f. No. 2)/s. 1300 (f. No. 1)

Calculation and interpretation of the result

To understand the calculation methodology presented above, it is necessary to consider it on specific example. To do this, you can take the data of the financial statements of the enterprise and evaluate them.

For example, the company's net profit in the reporting period amounted to 39,350 thousand rubles. At the same time, the balance sheet currency was fixed at the level of 816,265 rubles, and the equity capital in its composition reached the level of 624,376 rubles. Based on the above data, it is possible to find financial leverage:

CRA = 39,350/816,265 = 4.8%

RSK = 39,350/624,376 = 6.3%

RF = 6.3 - 4.8 = 1.5%

Based on the above calculations, we can say that the company, thanks to the use of credit funds, was able to increase profits in the reporting period by 50%. The financial leverage of the return on equity is 50%, which is optimal for effective management of borrowed funds.

Having become acquainted with such a concept as financial leverage, one can come to the conclusion that the method of its calculation allows one to determine the most effective ratio of credit funds and own liabilities. This enables the organization to receive greater profits by optimizing its capital. Therefore, this technique is very important for the planning process.

Financial leverage (financial leverage) is the ratio of the company's borrowed capital to its own funds, it characterizes the degree of risk and stability of the company. The smaller the financial leverage, the more stable the position. On the other hand, borrowed capital allows you to increase the return on equity, i.e. earn additional return on equity.

The indicator reflecting the level of additional profit when using borrowed capital is called effect of financial leverage. It is calculated using the following formula:

EGF \u003d (1 - Sn) × (KR - Sk) × ZK / SK,

Where:

The formula for calculating the effect of financial leverage contains three factors:

Let's write the formula for the effect of financial leverage in short:

EGF \u003d (1 - Sn) × D × FR.

• The effectiveness of the use of borrowed capital depends on the ratio between the return on assets and the interest rate for the loan. If the rate for a loan is higher than the return on assets, the use of borrowed capital is unprofitable.
• Other equal conditions b about More financial leverage gives b about more effect.

The leverage of financial leverage is used both at the enterprise, to calculate the required amount of a loan secured by assets, and in exchange trading. This tool helps to increase profits by attracting external sources funds. However, its inept use can lead to a deterioration in the economic condition and even cause bankruptcy.

What is financial leverage

The leverage of financial leverage is the ratio of own assets in relation to borrowed funds. In fact, it expresses the ability of the enterprise to pay the debt on time and in full. Banks and others credit organizations are required to calculate this parameter to determine the maximum amount of credit they can give to the enterprise. This definition is valid for both enterprises and individual investors using this instrument during speculative operations. It is usually expressed as a share or percentage of the funds received in debt or temporary use. For enterprises and banks, some formulas for calculating financial leverage are used, for investors - others. When using this tool, it is important to evaluate not only the benefits of the application, but also the risk that it carries.

purpose

Financial leverage is needed in order to increase the amount working capital. Entrepreneurs take it financial instrument to expand economic activity. You can also solve other financial problems related to the activities of the enterprise with the help of a loan.

The calculation of the leverage of financial leverage is carried out by both banks and individual businessmen. It is necessary in order to correctly evaluate possible risks associated with the use of leverage, as well as to determine the amount that an enterprise or investor can count on.

Calculation formula

To calculate the leverage of financial leverage, the formula is as follows:

DFL \u003d ((1-T) * (ROA - p) * D) / E,

where DFL denotes the effect of financial leverage;

T is the percentage rate of the income tax adopted in the country;

ROA - profitability of the company's assets;

p is the interest rate on the loan;

D - the amount of funds taken on credit;

E - equity.

However, among managers and accountants, another formula for calculating the leverage of financial leverage has become widespread. The calculation data is taken from financial statements. It looks like this:

DFL \u003d ROE - ROA,

where ROE is the return on equity. This parameter is calculated by the formula:

POE \u003d Net profit / Total for section 3.

Return on assets of the enterprise is calculated by the formula:

ROA = Net profit / Total balance sheet.

This method is convenient because all calculations can be automated. In addition, this way you can only evaluate the effect of using the leverage of financial leverage, and not calculate the amount necessary to expand or maintain the stable operation of the enterprise. This formula is not used to analyze past and current activities, but to predict.

Calculation example

In order to make the above formulas clearer, below are the calculations made for the JSC "Snezhka" enterprise based on the data of its annual report.

POE \u003d - 21055 / 480171 \u003d - 0.044;

ROA \u003d -21055 / 1488480 \u003d - 0.014;

DFL = - 0.044 + 0.014 = - 0.03;

How to interpret the received information? What does the result mean? If, when calculating the ratio of borrowed and own funds, it turned out to be less than 0.8, then the state of the enterprise is considered not quite stable. The company does not have enough current assets which it can realize to repay short-term loans. If it is more than 0.8 or equal to it, then the risk is insignificant and nothing threatens the enterprise, since it will be able to sell its assets in a timely manner and make a payment if necessary.

As can be seen from the calculations, JSC "Snezhka" is not only unable to pay off current debts, but it is also not entitled to receive a new bank loan to expand its activities. Here at least to pay off the debts that have arisen. This situation is observed in many Russian enterprises especially during the last 2-3 years. However, this is not a reason for the bank to take risks once again. To determine whether the financial leverage will help to rectify the situation, the calculations must be carried out not for one year, but for 3-5 years of the enterprise's operation.

What do the data obtained during the calculations mean?

The ratio of borrowed and own funds was obtained. But calculations are only half the story. The information received needs to be analyzed. The degree of risk depends on how correct the analysis and the decision will be. For a bank - the return of loans issued, for a businessman - the stable operation of the enterprise and the likelihood of bankruptcy.

As can be seen from the above example, the company has serious problems. In the current period, it received a net loss. The organization can take a loan from a bank to cover the debt that has arisen in connection with the received loss. But this threatens with a loss of stability and the risk of delinquency on loans, which, in turn, will lead to unforeseen expenses in the form of penalties and fines.

If an entrepreneur knows in advance the amount of the loan that he can count on, he can better plan where and on what he can spend these funds. This is the benefit of such calculations.

The use of financial leverage on the stock and currency exchange

The leverage of financial leverage has become most widely used in trading operations on the stock and currency exchanges. By raising borrowed funds, an investor can acquire more, which means a higher profit. But the use of leverage in such risky operations often leads to large losses in a short time.

When calculating the leverage for investors conducting speculative operations on the stock exchange, the formula is not used. In this case, the leverage of financial leverage is the ratio between the amount of capital and the loan provided for temporary use. The ratio can be as follows: 1:10, 1:50, etc. The larger the ratio, the higher the risk. The amount of the deposit is multiplied by the size of the leverage. Since fluctuations in the exchange are usually only a few percent, leverage allows you to increase the volume of used Money tens and hundreds of times, which makes the profit (loss) significant.

An indicator that reflects the level of additional profit when using borrowed capital is called the effect of financial leverage.

It is calculated using the following formula:

EGF \u003d (1 - Sn) x (KR - Sk) x ZK / SK,
where:
EFR is the effect of financial leverage, %.
Sn - rate, in decimal terms.
KR - asset ratio (the ratio of gross profit to average cost assets), %.
Sk is the average interest rate for a loan, %. For a more accurate calculation, you can take the weighted average rate for the loan.
ZK - the average amount of borrowed capital used.
SC - the average amount of equity capital.

(1-Sn) - does not depend on the enterprise.

(KR-SK) - the difference between the return on assets and the interest rate for a loan. It is called differential (D).
(LC/SK) - financial leverage (FR).

Let's write the formula for the effect of financial leverage in short:

EGF \u003d (1 - Cn) x D x FR.

2 conclusions can be drawn:

The effectiveness of the use of borrowed capital depends on the ratio between the return on assets and the interest rate for the loan. If the rate for a loan is higher than the return on assets, the use of borrowed capital is unprofitable. - Ceteris paribus, greater financial leverage produces greater effect.

Effect of financial leverage

Financial leverage (leverage) characterizes the use of borrowed funds by the enterprise, which affects the value of return on equity. Financial leverage is an objective factor that arises with the advent of borrowed funds in the amount of capital used by the enterprise, allowing it to receive additional profit on equity.

The idea of ​​financial leverage according to the American concept is to assess the level of risk based on fluctuations in net profit caused by the constant value of the company's debt service costs. Its action is manifested in the fact that any change in operating profit (earnings before interest and taxes) generates a more significant change in net income.

Interpretation of the financial leverage ratio: it shows how many times earnings before interest and taxes exceed net income. The lower limit of the coefficient is one. The greater the relative amount of borrowed funds attracted by the enterprise, the greater the amount of interest paid on them, the higher the impact of financial leverage, the more variable the net profit. Thus, increasing the share of borrowed financial resources in the total amount of long-term sources of funds, which, by definition, is equivalent to an increase in the strength of the impact of financial leverage, ceteris paribus, leads to greater financial instability, expressed in less predictable net profit. Since the payment of interest, in contrast to, for example, the payment of dividends, is mandatory, then with a relatively high level of financial leverage, even a slight decrease in profits may have adverse consequences compared to a situation where the level of financial leverage is low.

The higher the force of financial leverage, the more non-linear the relationship between net income and earnings before interest and taxes becomes. A slight change (increase or decrease) in earnings before interest and taxes under conditions of high financial leverage can lead to a significant change in net income.

The increase in financial leverage is accompanied by an increase in the degree of enterprise associated with a possible lack of funds to pay interest on loans and borrowings. For two enterprises with the same volume of production, but different levels of financial leverage, the variation in net profit due to changes in the volume of production is not the same - it is greater for the enterprise with a higher value of the level of financial leverage.

The European concept of financial leverage is characterized by an indicator of the effect of financial leverage, which reflects the level of additionally generated return on equity with a different share of the use of borrowed funds. This method of calculation is widely used in the countries of continental Europe (France, Germany, etc.).

EGF \u003d (1-Np) * (Ra-Tszk) * ZK / SK

- financial leverage differential (ra-C,k), characterizing the difference between the profitability of the company's assets and the weighted average calculated interest rate on loans and borrowings;
- leverage of the financial leverage CC/SC

The amount of borrowed capital per ruble of own. In terms of inflation, the formation of the effect of financial leverage is proposed to be considered depending on the rate of inflation. If the amount of the company's debt and interest on loans and borrowings are not indexed, the effect of financial leverage increases, since debt servicing and the debt itself are paid for with already depreciated money:

EGF \u003d ((1-Np) * (Ra - Tsk / 1 + i) * ZK / SK,
where i - characteristic of inflation (inflationary rate of price growth), in fractions of units.

In the process of managing financial leverage, a tax corrector can be used in the following cases:

If differentiated tax rates are established for various types of activities of the enterprise;
- if the enterprise uses income tax benefits for certain types of activities;
- if individual subsidiaries of the enterprise operate in the free economic zones of their country, where there is a preferential regime for profit taxation, as well as in foreign countries.

In these cases, by influencing the sectoral or regional structure of production and, accordingly, the composition of profit in terms of its taxation level, it is possible, by reducing the average profit tax rate, to reduce the impact of the financial leverage tax corrector on its effect (ceteris paribus).

The financial leverage differential is a condition for the emergence of the effect of financial leverage. A positive EGF occurs when the return on total capital (Ra) exceeds the weighted average price of borrowed resources (Ccc).

The difference between the return on total capital and the cost of borrowed funds will increase the return on equity. Under such conditions, it is beneficial to increase the financial leverage, i.e. the share of borrowed funds in the capital structure of the enterprise. If Pa is less than Tsk, a negative EGF is created, resulting in a decrease in the return on equity, which can eventually become the cause.

The higher the positive value of the differential of financial leverage, the higher, other things being equal, its effect.

Due to the high dynamism of this indicator, it requires constant monitoring in the process of profit management.

This dynamism is driven by a number of factors:

Just like other exporting countries, Russia uses a wide arsenal of means of regulating international credit relations - these are tax and customs benefits, state guarantees and subsidizing interest rates, subsidies and loans. However, to a greater extent Russian state supports large corporations and banks, as a rule, having a solid state participation, that is, themselves. But medium and small businesses get little from the flow of benefits that spills onto large businesses. On the contrary, loans for the purchase of imported equipment are provided to small and medium-sized companies that are not included in small business support programs at significantly more stringent rates than for big business, conditions.

The exchange rate and the direction of movement of world capital are also affected by the difference in interest rates in different countries. An increase in interest rates stimulates the inflow of foreign capital into the country and vice versa, and the movement of speculative, "hot" money increases the instability of the balance of payments. But it is unlikely that the regulation of interest rates is productive due to the need to control liquidity, which means that it can interfere. At the same time, the Central Bank reduced the rate of deductions to the Mandatory Reserve Fund for ruble deposits. This measure is justified by the fact that reserve requirements are lower in Europe, and Russian banks find themselves in unequal conditions.

financial leverage profitability

EGF \u003d (1-Np) * (Ra-Tszk) * ZK / SK

Where Np - the income tax rate, in fractions of units;
Rp - return on assets (the ratio of the amount of profit before interest and taxes to the average annual amount of assets), in fractions of units;
Tsk - the weighted average price of borrowed capital, in fractions of units;
ZK - average annual cost loan capital; SC is the average annual cost of equity capital.

There are three components in the above formula for calculating the effect of financial leverage:

Tax corrector of financial leverage (l-Np), which shows the extent to which the effect of financial leverage is manifested in connection with different levels of income taxation;
- financial leverage differential (ra-C,k), characterizing the difference between the profitability of the company's assets and the weighted average calculated interest rate on loans and borrowings;
- leverage of the financial leverage CC/SC

Operational and financial leverage

Most common the following types leverage:

Production (operational) leverage.
financial leverage.

All companies use financial leverage to some extent. The whole question is what is a reasonable ratio between own and borrowed capital.

The ratio of financial leverage (shoulder of financial leverage) is defined as the ratio of borrowed capital to equity capital. It is best to calculate it by market valuation assets.

The effect of financial leverage is also calculated:

EGF \u003d (1 - Kn) * (ROA - Zk) * ZK / SK.
where ROA - return on total capital before taxes (the ratio of gross profit to the average value of assets)%;
SC - the average annual amount of own capital;
Kn - taxation coefficient, in the form of a decimal fraction;
Tsk - weighted average price of borrowed capital, %;
ZK - the average annual amount of borrowed capital.

The formula for calculating the effect of financial leverage contains three factors:

(1 - Kn) - does not depend on the enterprise.
(ROA - Tsk) - the difference between the return on assets and the interest rate for a loan. It is called differential (D).
(ZK/SK) - Financial leverage (FR).

You can write the formula for the effect of financial leverage in a shorter way:

EGF \u003d (1 - Kn) x D x FR.

The effect of financial leverage shows by what percentage the return on equity is increased by attracting borrowed funds. The effect of financial leverage arises due to the difference between the return on assets and the cost of borrowed funds. The recommended EGF value is 0.33 - 0.5.

The effect of financial leverage is that leveraging, other things being equal, results in an increase in a corporation's earnings before interest and taxes leading to a stronger increase in earnings per share.

The effect of financial leverage is also calculated taking into account the effect of inflation (debts and interest on them are not indexed). With an increase in the inflation rate, the fee for using borrowed funds becomes lower (interest rates are fixed) and the result from their use is higher. However, if interest rates are high or the return on assets is low, financial leverage begins to work against owners.

Leverage is a very risky business for those enterprises whose activities are cyclical. As a result, several consecutive years of low sales can lead heavily leveraged businesses to bankruptcy.

For a more detailed analysis of the change in the value of the financial leverage ratio and the factors that influenced it, the method of the 5th financial leverage ratio is used.

Thus, financial leverage reflects the degree of dependence of the enterprise on creditors, that is, the magnitude of the risk of loss of solvency. In addition, the company gets the opportunity to take advantage of the "tax shield", since, unlike dividends on shares, the amount of interest on the loan is deducted from the total amount of profit subject to taxation.

Operating leverage (operating leverage) shows how many times the rate of change in sales profit exceeds the rate of change in sales revenue. Knowing the operating leverage, it is possible to predict the change in profit with a change in revenue.

It is the ratio of a company's fixed to variable costs and the impact of this ratio on earnings before interest and taxes (operating income). Operating leverage shows how much profit will change if revenue changes by 1%.

The price operating leverage is calculated by the formula:

Rts \u003d (P + Zper + Zpost) / P \u003d 1 + Zper / P + Zpost / P
where: B - sales revenue.
P - profit from sales.
Zper - variable costs.
Zpost - fixed costs.
Rts - price operating leverage.
pH is a natural operating lever.

Natural operating leverage is calculated by the formula:

Rn \u003d (V-Zper) / P

Considering that B \u003d P + Zper + Zpost, we can write:

Rn \u003d (P + Zpost) / P \u003d 1 + Zpost / P

Operating leverage is used by managers to balance different kinds costs and increase income accordingly. Operating leverage makes it possible to increase profits when the ratio of variable and fixed costs changes.

Participating in the formation and use of funds of monetary resources, financial leverage should influence the economic activities of economic agencies, stimulate the economic growth, increase labor productivity, improve product quality, perform all other tasks related to the organization of production in terms of commercial calculation. The impact of financial levers on the development of social production depends on the functions with which they are endowed, and on the implementation of these functions in practice. Thus, historical experience shows that taxes, when applied correctly, bring enormous benefits to the state, and when applied incorrectly, they cause irreparable harm. Even the technical moment in tax practice plays a very important role. A classic example of this in the history of the Soviet economy is the fact that surplus appropriation was replaced by a tax in kind. As a result, the tax began to be levied in a different form, and this led to positive results, although the severity of the taxation remained almost at the same level. Hence the conclusion - all financial levers require the most careful attitude both in their development and in their application.

Importance plays both in production and not production activities a system of financial incentives, which are levers of influence on social production. The transformation of finance into a tool that ensures the organic inclusion of commodity-money relations in the management mechanism market economy, strengthening the impact of finance on production in modern conditions management occurs through the improvement of all forms of financial relations, including through the activation of financial incentives - encouragement for good performance and the application of sanctions for violations.

Various kinds of incentives expressing the content of the financial mechanism can be applied in the formation of income, savings and funds. A wide range of various benefits are provided for taxes levied to the budget by partially or completely exempting enterprises from paying them. The purpose of the incentive is to increase funds allocated for activities related to the development of production, the social needs of employees, environmental protection activities, charitable purposes, and the expansion of production. certain types products (works, services). When income is concealed or paid late, various kinds of sanctions are applied, both economic and administrative, up to and including criminal liability.

Benefits and sanctions are also applied in the organization of financing and lending to the production activities of enterprises and organizations of all forms of ownership. For example, they can be applied for misuse of funds, late repayment of bank loans.

It is also important to develop the quantitative parameters of each element of the financial mechanism, i.e., the determination of rates, norms and standards for the allocation and withdrawal of funds, the volume of individual funds, the level of spending financial resources, etc.

One of the fundamental principles of the activities of legislative and executive bodies related to the use of financial levers and incentives, the development of norms and standards, is the operational accounting of changes business processes and timely impact on them, aimed at improving the efficiency economic development states.

Action of financial leverage

It is a probabilistic and uncertain process. Therefore, it is extremely important to know the answer to the question: how likely is the entrepreneur to achieve his goals? It can only be answered taking into account the riskiness of the project, i.e., to determine a quantitative measure of the risk associated with a given enterprise and a specific investment project(More on this later).

Earlier we have already said that the action of the financial lever inevitably creates a certain risk (financial) associated with the activities of the company, the action of the production (operational) leverage also creates a risk (production) associated with the activities of the company. Therefore, it seems logical to conclude that with a more accurate consideration of the activities of the enterprise, the summation of financial and production risks occurs.

The financial risk arising from the activity of financial leverage acts as the risk of obtaining a negative value of the differential (then not only will the return on equity not increase, but it will decrease) and the risk of reaching such a leverage value when it becomes impossible to pay interest on loans and current debt (there is an undermining of confidence in the company on the part of creditors and other economic entities with catastrophic consequences for it).

quantitative measure financial risk is determined by the optimal values ​​of the financial leverage parameters. For the differential, the optimal value is related to the ratio of the effect of financial leverage and return on equity. The quantitative value of this ratio is in the range from 1/3 to 1/2. At the same time, the value of the relation economic profitability and the average calculated interest rate must be greater than 1. From above, this ratio is limited by the growth opportunities for the economic profitability of the company (this objective factors economic and technological order).

For leverage, the optimal ratio of borrowed and equity funds for normally operating firms in the West is determined at the level of 0.67. As mentioned above, for Russia today, this ratio should be different. The reason is high inflation (by Western standards), which Russian firms perceive as a normal background for the implementation of their entrepreneurial activity. As a result, the optimal leverage value is somewhere in the range of 1.5.

Obviously, in this case, the strength of the financial leverage should be in the range from 4/3 to 3/2. This value was obtained as follows: starting from the optimal ratio of EGF and RCC, we transferred it to the share of interest payments on a bank loan in the company's balance sheet profit (do not forget that we are trying to determine a certain limit value of the force of financial leverage as a quantitative expression of financial risk) . This gave us the opportunity to determine a certain “good” position (the force of the financial leverage is 4/3, i.e. up to 1/3 of the balance sheet profit goes to pay interest on loans) and a certain position, which we can call a “red line”, to enter for which it is undesirable for the company (the strength of the financial leverage is within 3/2, which requires the company to pay 1/2 of the balance sheet profit as interest on loans).

Similarly, we will try to determine the limit value of the effect of production leverage. Recall that it shows how many percentage points will increase (decrease) profit with an increase (decrease) in revenue by 1%. It should be noted that each industry has its own business conditions, determined by economic, technological, and other reasons. Therefore, it is unlikely to be reasonable to determine the only quantitative value of the effect of production leverage for calculating the degree of risk associated with the entrepreneurial (not financial) activity of the firm.

Most likely, we should talk about some kind of “framework”. On the one hand, this will be the volume of production corresponding to the threshold of profitability, on the other hand, the volume of production of these goods, which will require a one-time increase in fixed costs.

It is unsafe for a company to be both at the threshold of profitability and at the point where it is no longer possible to increase production without an increase in fixed costs. Both of these provisions are associated with the risk of a significant loss of profits. It is known that the closer the firm is to the threshold of profitability, the more power the impact of the production lever (and this is a risk!). It is just as risky to “sleep through” the period of growth of fixed costs, having calmed down due to the significant amount of financial safety margin.

Thus, the firm is faced with a dilemma: either high growth rates of production and approaching the period of a one-time increase in fixed costs, or a slow increase in production, which allows you to “push back” the period of a one-time increase in fixed costs. In the second case, the firm must be sure that its product will be in demand for a long time.

Now about the role of fixed costs in determining the production (entrepreneurial) risk. Recall that a large proportion of the fixed costs that we are interested in is an objective requirement of technology (for example, capital-intensive production of ferrous metals).

Let's consider a simple example. We have two firms that differ only in the proportion of fixed costs:

First: revenue - 1200, fixed costs - 500, variable costs- 500, profit - 200.
Second: revenue - 1200, fixed costs - 100, variable costs - 900, profit - 200.
The strength of the impact of the production lever for the first firm is 3.5, for the second firm - 1.5.

Therefore, the higher the share of fixed costs, the greater the force of the production leverage, and, consequently, the entrepreneurial risk associated with this firm, and vice versa.

Everyone knows (this has already been mentioned above) that in the real activity of a real company, financial and entrepreneurial risks are summed up. AT financial management this has found its expression in the concept of the conjugate effect of financial and production levers:

The level of conjugate effect of financial and operating leverage = the strength of the financial leverage x the strength of the operating leverage

In fact, this indicator gives an assessment of the total risk associated with this enterprise. Unfortunately, we will not be able to give an exact quantitative assessment of it; we will restrict ourselves to “framework” estimates only.

So, the force of financial leverage increases during the development period. new products(the period of increasing production and reaching the threshold of profitability) and during the period of refusal to produce this product and the transition to the production of a new one (the period when there is a sharp increase in fixed costs). Consequently, during this period, the financial risk associated with the firm increases (a sharp increase in borrowing).

Production (entrepreneurial) risk increases in the same periods of the firm's activity. Consequently, the overall risk associated with the enterprise increases in two cases: reaching the threshold of profitability and a sharp increase in fixed costs due to the need to develop new products. It remains only to accurately determine the beginning of these periods! This will be the “universal” recipe for reducing the overall risk!

To determine the risk associated with the firm, it is necessary to use not only the strength of financial and operational leverage, but also be able to measure the risk by determining the average expected value of the event and the volatility (variability) of the possible outcome.

Science has also developed ways to reduce risks (financial and industrial). We will not deal with this issue in detail in this manual. We will only list these methods: production, obtaining additional and reliable information, risk insurance, limiting costs, and so on. We see that among them there are both economic and financial ways to reduce the risk associated with the firm.

In the framework of this work, I would like to dwell in more detail on one specific form of risk generated by the actions of shareholders. It seems that it should be in the center of attention of enterprise managers. To overcome it, traditional forms of risk reduction can be used (see above), but there is a fundamental important aspect for the financial manager.

It is clear that owners and managers have different interests, including economic ones. If the main criterion for a shareholder's activity is the maximization of income (profit) per share and the growth of its price, then managers seek to increase the stability of the enterprise they manage, i.e., most likely, they tend to set and implement long-term (strategic) goals, unlike shareholders, usually based on setting short-term goals.

Another very important moment for the manager, connected with the shareholders, is that the risk coming from the shareholders is the most dangerous for the firm. It is hard to imagine what might happen to a firm in the event of a panic among shareholders, who are not always as economically literate as managers. Shareholders react more easily to rumors that may be deliberately spread by unscrupulous competitors. Their (shareholders) behavior is very difficult to regulate, since they are owners, and managers are only hired managers. Therefore, for managers, the issue of neutralizing shareholders becomes fundamental. By solving it, they will be able to reduce or even eliminate the risk associated with the behavior of shareholders.

As a result, the role of general meeting shareholders and the report on it of the managers of the enterprise (the financial section is the most important here, because it is written in a language understandable to shareholders - income, expenses, profits, losses, etc.). Shareholders are particularly interested in future earnings per share (remember, we must neutralize shareholders at least until the next shareholder meeting).

So, net earnings per share in the future period is determined as follows:

EPS in the future period = Earnings per share in the current period x (1 + level of conjugate effect of financial and operating leverage) x Percentage change in sales revenue

In the formula, the last multiplier - the percentage change in revenue from product sales is determined according to the rules already formulated by us (see above), so financial managers have a tool that allows them to reassure shareholders. Obviously, if revenue growth is planned for the next period, this will positively affect the amount of net income per share in the future period. A calm shareholder is a virtually neutralized shareholder.
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