Margin of financial strength in relative terms formula. Margin of financial strength: how strong is the company in the market? What does the financial strength factor show?

stock financial strength (margin of safety) - one of the main parameters in the analysis financial stability enterprises (more: analysis). A large margin of financial strength allows you to minimize the risk of incurring losses due to minor fluctuations in revenue. Thus:

The higher the real level of production and sales, the more it exceeds the break-even point, the less likely direct losses are when the revenue fluctuates (decreases).

financial safety chart

The economic meaning of the margin of safety (Margin of Safety)

On the chart you can (intersection of the revenue line and the line of gross costs), as well as the margin of financial safety (the difference between the planned volume of production / sales and the break-even point at any point on the chart that exceeds the break-even point). The economic meaning of the financial safety margin is to identify: how much you can reduce the amount of revenue without receiving a financial result in the form of a loss.

The formula for calculating the margin of financial safety

ZFpr \u003d KOLf - KOLtb
where
ZFpr - margin of financial strength,
KOLf - volume of output / sales volume (actual),
KOLTb - the volume of production / sales at the break-even point.
in percentage terms
ZFpr \u003d (KOLf - KOLtb) / KOLf * 100%

Often, analysts calculate the margin of financial safety it is in percentage terms, in relative terms, trying to find how much it is possible to reduce sales, while not reaching the threshold of profitability. You can clearly see this in the above.

In management accounting, great importance is given to controlling the margin of financial strength in a dynamically developing business environment. See also, with the holding, which closely related to the calculation of the financial strength of the enterprise.
The fastest change stock index fin. strength with a slight excess of the profitability threshold, it changes least with a significantly larger volume of production and sales, which indicates to us the stability of production, its efficiency.

Financial safety margin

Economists do not distinguish as such a norm, or a normative value for the indicator of fin. strength, but
with a value of 10% or more (in relative terms), production is considered highly profitable and financially sustainable.

The activity should bring a positive profit, this is understandable. But there are situations (the reasons may be different) when the company's business starts to go badly, it is necessary to reduce the volume of manufactured and sold products. The company is no longer waiting for large incomes, but at least zero profit, when expenses do not exceed income. But where is this threshold, at the crossing of which the activity becomes unprofitable? How much can the company cut back on its work? What is the margin of financial stability?

Security zone

There is a "tipping" volume of production or sales, in which the costs of creating and marketing products are equal to the proceeds received. This is the break-even point, at the intersection of which the “everything is bad” stage begins. So, the "distance" from the existing sales volume to this point is a kind of safety zone, that is, the financial strength of the enterprise.

Required indicators

To determine to what extent a company can afford to reduce revenue without making a loss, the following data will be required:

Fixed and variable costs

Fixed costs do not depend on the volume of production or on the selling price. No matter how many products are produced, these costs will be incurred: rent, leasing, credit, utility payments, salary, etc.

Variable costs are directly related to the volume of products produced: the cost of materials and raw materials, the payment of piecework wages, etc. These costs appear either after income is received (for example, interest is paid to the sales manager after he has sold the goods), or in product manufacturing process. In both cases, the costs are fully controlled, the money does not disappear into nowhere. The same investments in used materials, let unsold products, remain with the enterprise in the form of inventories. It is the optimization of these costs that the company is primarily engaged in when the margin of financial strength dries up or is too small, and it is necessary to lower the break-even point.

Break even point calculation

• Now that we have decided on the revenue parameters and cost types, we will calculate the profitability threshold. This is the ratio of fixed costs for production and sales (Zpost) to the difference between revenue (B) and variable costs (Zper), that is, Tb \u003d Zpost / (B - Zper).
• The result will show how many units of output must be produced in order for the revenue to cover the costs. To obtain the result in monetary terms, the formula will look like this: B * Zpost / (B - Zper).

Calculation of the financial strength ratio

• Finally, the financial safety margin (Ffp) is determined using the following formula: Ffp = (B - Wb) / B * 100%, where B is the current sales volume, and Wb is the difference between sales in the current period and the estimated value of sales in breakeven point.
• If you want to get the result not in monetary terms, but in kind, then you should substitute in this formula instead of revenue (B) the volume of sales in units of production.

Thus, the margin of financial safety is an indicator of the financial stability of the company, which gives an idea of ​​​​the permissible decrease in the volume of production and sales within the threshold of profitability.

It aims to determine what the sales volume should be in order for the enterprise to cover all its expenses without outside help without making a profit. This analysis is usually of more importance to the lender than to the investor, since he is primarily concerned with the company's ability to service debt.

The classification of costs into fixed and variable allows you to identify the point break even(profitability threshold), which indicates the volume of sales at which the proceeds cover all the costs of the enterprise associated with the production and sale of products.

To determine the break-even volume of production, the formula can be used

Q min = , where Q is the volume of output in natural units;

p is the price of a unit of production; FC - fixed costs per unit of output;

VC - variable costs per unit of output.

After calculating the break-even production volume, which guarantees the company a net profit, we can say that production has reached a certain margin of safety.

The margin of financial strength shows how much you can reduce production without incurring losses. The margin of financial strength (safety zone) is the difference between the actual and break-even volumes of production and sales.

With a negative value of the safety zone, the enterprise can withdraw certain types of products from production, change the conditions of production, and thereby reduce costs or stop production.

The margin of financial strength shows how much you can reduce production without having losses. In absolute terms, the calculation represents the difference between the planned sales volume and the break-even point.

In absolute terms, it is calculated by the formula:

Fin stock = Qplan - Qmin.

This expression means that the company should not reduce production by more than Z. fin.

In relative terms:

Fin stock = Q plan - Qmin

Q plan

This indicator is used to assess production risk, that is, the losses associated with the structure of production costs.

A decrease in production and sales by more than a coefficient (Z. fin) is fraught with unpleasant consequences for the enterprise if the losses are not covered by proceeds from non-operating activities.

In value terms, the financial safety margin is calculated by the formula

Z. fin \u003d Q plan x P-Qmin x P, where P is the price of the product.

The higher the financial strength, the less risk losses for the enterprise.

Analysis of the financial stability and solvency of the organization. Bankruptcy Probability Assessment

Solvency means that the company has Money and their equivalents sufficient to settle accounts payable that require immediate repayment.

Thus, the main signs of solvency are:

availability of sufficient funds in the current account;

No overdue accounts payable.

The solvency of an enterprise is assessed using solvency ratios, which are relative values. Solvency ratios reflect the ability of the enterprise to repay short-term debt at the expense of certain elements of working capital.

Financial stability is characterized by the ratio of own and borrowed funds. However, this figure only overall score financial stability. The most important indicator characterizing the financial stability of an enterprise is the indicator specific gravity total amount equity as a result of all funds advanced to the enterprise, i.e. the ratio of the total amount of equity capital to the balance sheet of the enterprise.

Usually there are 4 types of financial stability of the enterprise:

1. Absolute financial stability, when reserves are fully covered by own working capital, i.e. the company is not dependent on external creditors.

2. Normal financial stability, when a successfully functioning enterprise uses its own and borrowed sources of funds to cover reserves.

3. Precarious financial situation, when an enterprise is forced to attract additional sources of coverage to cover part of its reserves.

4. Critical financial situation (the company is on the verge of bankruptcy), This situation means that the company cannot pay its creditors on time.

Solvency and financial stability indicators complement each other and together give an idea of ​​the well-being of the financial condition of the enterprise: if the enterprise has poor liquidity indicators, but financial stability is not lost, then the enterprise has a chance to get out of a difficult situation. But if both liquidity indicators and financial stability indicators are unsatisfactory, then such an enterprise is a likely candidate for bankruptcy.

AT Russian Federation to identify enterprises with an unsatisfactory financial condition and in order to identify signs of bankruptcy, a methodology is used approved by Decree of the Government of the Russian Federation dated May 20, 1994 M-198 “On certain measures to implement the legislation on the insolvency (bankruptcy) of an enterprise” and Appendix No. 1 - “System criteria for determining the unsatisfactory structure of the balance sheet of insolvent enterprises”.

Insolvency (bankruptcy) of an organization: financial and legal aspect

Insolvency (bankruptcy)- the inability of the debtor recognized by the arbitration court to fully satisfy the claims of creditors for monetary obligations and (or) to fulfill the obligation to make mandatory payments.

Bankruptcy is always financial insolvency, but financial insolvency does not always mean bankruptcy. Financial viability or insolvency are two opposite characteristics of the financial condition of an enterprise. Financial condition is a complex concept. To evaluate it, a system of analytical indicators is calculated: indicators of liquidity, financial stability, efficiency of resource use, and business activity. Thus, financial stability (instability) is a qualitative and quantitative characteristic of the financial condition of an enterprise, a concept narrower than financial solvency (insolvency).

To signs of bankruptcy include the inability of the debtor to satisfy the claims of creditors, including ensuring payments to the budget and extra-budgetary funds, due to the fact that the debtor's obligations exceeded the value of his property. A legal entity is considered unable to satisfy the claims of creditors for monetary obligations and fulfill the obligation to make mandatory payments if the relevant obligations and obligations are not fulfilled by it within 3 months from the date when they should have been fulfilled. These features are prerequisites that give the court the right to declare a legal entity insolvent (bankrupt).

Bankruptcy is one of the grounds for liquidation legal entity. Liquidation of hopelessly insolvent debtors is considered a positive measure. However, declaring a debtor bankrupt also has negative consequences, since it affects not only the property interests of the debtor, but also the rights and interests of a wide range of other persons - its employees, partners, creditors and others. So Russian legislation on bankruptcy provides for a set of measures to restore the solvency of the debtor, aimed at preventing mass bankruptcies,

MEASURES TO PREVENT BANKRUPTCY OF THE ORGANIZATION

In the event of signs of bankruptcy, the head of the enterprise is obliged to send information to the founders about the presence of signs of bankruptcy. The founders of the debtor are obliged to take timely measures to prevent the bankruptcy of organizations.

In order to prevent the bankruptcy of organizations, the founders of the debtor take measures aimed at restoring the solvency of the debtor - pre-trial sanitation.

Sanation - financial assistance to the debtor from the owner, creditors or other persons. This procedure is applied at the request of the persons on whose application a bankruptcy case was initiated. The owner, creditors, labor collective of the enterprise-debtor have the priority right to carry out rehabilitation. An agreement is concluded between the participants of the rehabilitation. It specifies the obligations of the participants related to the satisfaction of creditors' claims, the terms of such satisfaction, the expected duration of the rehabilitation, the responsibility of the participant who refuses to participate in the rehabilitation.

For rehabilitation, it is established maximum term- 18 months. But already after the first 12 months, 40% of the total amount of debts must be satisfied. If this requirement is not met, the sanitation is terminated.

Margin of financial strength is the difference between the actual sales volume and the sales volume corresponding to the break-even point.

Determination and analysis of the financial safety margin is carried out in the FinEkAnalysis program in the Cash flow analysis block.

Margin of financial strength formula

The margin of financial strength shows the extent to which a business can reduce sales before incurring a loss.

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The margin of financial strength shows how ready a company is for a negative scenario of market development. The calculation of the indicator allows you to quickly respond to the changed situation. The article contains formulas, calculation examples, normative values ​​and ways to improve the financial stability of a business.

What is financial strength

The financial safety margin is a financial ratio that makes it possible to determine how ready an enterprise is to reduce the level of production. The decline can occur for various reasons, predictable and unpredictable. The margin of financial strength allows you to quickly respond to the changing market situation by taking timely steps - launching the release of a new product, expanding the sales region, reducing the price of the product, and taking other measures.

The greatest impact on the margin of financial strength of the organization have a total cost, consisting of variable and fixed costs. It is their size that determines the stability of the company, and it is in the costs that the greatest potential for increasing the stock is hidden.

Financial safety margin formula

The financial safety factor is calculated subject to a number of conditions:

1. For the billing period, logistics stocks (in stock) are not taken into account, it is assumed that sales completely select all released goods without a balance.
2. The range of manufactured goods does not change and remains constant throughout the analyzed period of time.
3. and do not change throughout the study period.
4. There is a direct linear relationship between variable costs and the volume of goods produced or sold.

The calculation can be done in relative and absolute terms.

in monetary terms it looks like this:

ZFP \u003d (Vp - Wb) / Vp,

Vp - sales revenue;

Vtb - revenue at the break-even point

Absolute value calculation:

ZFP \u003d Vp - Wtb

Calculation of the percentage value: DFP = ((Vp - Wb) / Vp) * 100%

Calculation in kind

The formula for calculating in kind is as follows:

ZFP n \u003d (Opr - OPtb) / Opr,

ZFP n - financial strength factor in physical terms;

OPtb - sales volume at the break-even point, pieces;

ODP - current or planned production volume, pieces.

Absolute value calculation:

ZFP n \u003d Opr - OPtb

Calculation of the value as a percentage:

ZFP n \u003d ((Opr - OPtb) / Opr) * 100%

There are also additional calculation methods that are performed using other parameters. economic activity companies.

How to assess the financial safety margin of a debtor

It is necessary to assess the financial safety margin of the debtor if he asks for a significant deferred payment or a large loan. This will make sure that he will not have a loss until he pays off.

Calculation taking into account net profit

The formula for calculating the margin of financial safety, taking into account net profit, is as follows:

ZFP \u003d PE / (PE + Rpost),

NP - net profit of the company;

Rpost - fixed costs.

This calculation is based on the amount of generated net profit, as a result, the efficiency of the sale, and not the production of goods, is shown.

Calculation of the financial safety margin, taking into account the production capacity indicator

Separately, it should be noted that when preparing investment plan and designing production, there are some difficulties in determining the safety factor of financial strength. The fact is that in this case there is no production and sale of goods, so there is nowhere to take data from. Then it makes sense to calculate Kzfp using the production capacity indicator.

The formula for calculating the financial safety margin, taking into account the production capacity indicator in monetary terms:

ZFP \u003d PM - OPtb,

PM - planned production capacity;

OPtb - sales volume at the break-even point, pieces.

Calculation of the value as a percentage: ZFP = (PM - OPtb) / PM * 100%.

Graphical representation of the margin of financial safety

The graphical display of the FFP and other parameters is shown in the figure.

Picture. Margin of financial strength of the enterprise

X-axis - volume goods sold in kind;

The Y-axis is the volume of goods sold in monetary terms.

It can be seen that the margin of financial strength grows or decreases as quickly as possible, gradually decreasing the speed as you move away from this point.

A high level indicates that the company is not at risk of bankruptcy, and the production, logistics and sales system are operating at a level sufficient to maintain profitability that is interesting for potential investors.

Standard value

Table. Margin of financial strength, normative value

It is necessary to take into account the price risk that arises when the price at which goods are sold changes. This risk is displayed using such a parameter as “operating leverage”, in foreign practice the word Leverage (English) is used - leverage.

Operational impact financial leverage is that variable and fixed costs have a disproportionate impact on the financial outcome of the enterprise in the case when the price or volume of sales changes. If the volume of fixed costs in the cost of goods produced is high, then the impact of operating leverage will have a significant impact. However, if there is a significant increase in sales in physical terms, then the amount of fixed costs in the cost of goods will decrease and, accordingly, the influence of operating leverage will decrease.

The financial safety margin is related to the operating leverage, the following formula is used to calculate the leverage value:

OFR = 1 / ZFP;

where OFR - operational financial leverage;

The higher the value of the operating leverage, the less the company's financial strength becomes and vice versa. Excessive leverage brings the company to the threshold of profitability, which entails a loss of control over financial development. It also indicates an increase in fixed and variable costs and a significant gap between revenue and profit. Such business development can occur in the following cases:

• investment in modernization, innovation and new production solutions and technologies;
• capacity expansion and recruitment of new staff;
• a decrease in the level of quality of products, a drop in labor productivity, an increase in defects;
• unreasonable increase in the level of wages for low-skilled personnel;
• reduction in the selling price of manufactured goods;
• decrease in sales below the level set by the plan.

Capacity development and investment in innovation and modernization should be based on a clear understanding of the situation and analysis that shows that fixed costs will not drag down the financial strength of the organization.

How to improve financial strength

The margin of financial strength with a high degree of accuracy reflects the real state of affairs of the company, its economic condition, gives a quantitative assessment of the quality production activities. Most strong influence strength is exerted by the system of sales of goods, the logistics network and the number of trading partners. The more successfully the manufactured product is sold or the more demanded the service is, the higher the strength indicator. Experts note that in order to maintain a margin of financial strength on high level, it is necessary to give priority to creating conditions for increasing sales and increasing revenue.

To strengthen the financial strength of the company, it is necessary:

• increase sales revenue by increasing the price and quality level of goods;
• increase revenue by increasing sales volumes and at the same time increase production capacity;
• increase revenue through participation in tenders and through the receipt of government orders;
• reduce the break-even point by optimizing the structure of the product range and promoting the most profitable products;
• reduce fixed and variable costs, including by searching for new suppliers of fuel and raw materials, reducing logistics costs, more rational use resources, improving the quality of labor, introducing innovative production technologies, automating low-skilled labor.

Financial strength analysis should be carried out continuously, and data for analysis should be available to potential investors and lenders. After all, the higher the ratio, the more attractive the business for investment.