Return on equity of Russian workwear producers

Credinform Information Agency prepared a ranking Return on equity of workwear producers in the Russian Federation. For this ranking, we selected Russian workwear producers with highest revenue and then ranked these producers by “return on equity” index.

This financial indicator characterizes the business profitability for its owners. It is a crucial financial indicator of return for investors and business owners that shows how economically efficient the use of funds invested in business was. Return on equity ratio characterizes utilization efficiency not of entire capital (or assets) of organization, but only of its part, which is owned by company proprietors. It is actually the main index for strategic investors (in Russian context – those investing for one-year term and longer). It allows defining utilization efficiency of capital invested by company owners. Owners get return on their investments in the form of contribution to the equity capital.

In particular, the considered indicator – return on equity – is calculated as ratio of profit gained by enterprise over a period to average equity rate over the same period. Recommended value of the considered indicator is over 30. Coefficient value between 35 and 70 is one of indicators of the company’s high ability to repay its debentures.

Solvency index and return on equity of workwear producers with highest turnover
NNameINNTurnoverin 2011, ml rub.Return on equity Index
1 BTC Group OJSC 7816043890 4,424.97 394.07 276 (high)
2 Fakel Textile Production Enterprise LLC 7715707513 537.38 49.37 282 (high)
3 WorkwearFactory CJSC 0274043510 1,251.68 47.75 153 (highest)
4 Meridian CJSC 5259003336 889.90 44.83 217 (high)
5 Kuzbasslegprom LLC 4205010254 545.23 37.15 229 (high)
6 High-Force Materials Centre “Armoured Composites” CJSC 5042001735 531.67 35.96 163 (highest)
7 Production and Implementation Limited Liability Company “Firma Tekhnoavia” 7724152603 6,177.74 35.18 185 (highest)
8 Formex Production and Commercial Company CJSC 7709204215 929.61 33.1 218 (high)
9 Red Fox LLC 7825387961 836.75 23.76 323 (satisfactory)
10 FIG Energokontrakt CJSC 7703268269 3,076.59 23.27 202 (high)

Among first ten companies with highest turnover, only six enterprises met the standard D/E ratio (Fakel Textile Production Enterprise LLC, Workwear Factory CJSC, Meridian CJSC, Kuzbasslegprom LLC, High-Force Materials Centre “Armoured Composites” CJSC, and Production and Implementation Limited Liability Company “Firma Tekhnoavia”). All these companies were assigned by Credinform Agency with the highest and high solvency index, which proves their ability to repay debentures timely and in full.

Return on equity index of BTC Group OJSC exceeds the target ration. Despite the fact that the higher is the indicator, the better is the return on equity, high value of indicator may occur due to a too high financial leverage, i.e. higher prevalence of borrowed funds over equity, which may negatively affect financial stability of organization. This matches with the key business rule – higher profit means higher risk. But other financial indicators shows high solvency rate of the company, which is confirmed by GLOBAS-i Index.

Red Fox LLC and FIG Energokontrakt CJSC showed coefficient value lower than the recommended rate; therefore, the mentioned companies use equity with poorer economic efficiency than other surveyed companies.

For retaining market sustainability and ensuring opportunities for further development, these enterprises need to pay better attention to return on equity, as well as to manage debt burden more efficiently and to build capital.

Corporate bankruptcy

According to the Federal Tax Service, 9290 companies have failed in the last year (2012), due to bankruptcy, that is 17.5% less than in the previous year (2011), thereby proving Credinform experts' earlier predictions. It is worth mentioning that the bankruptcy rate has been going down since 2010. 

Most of them were LLCs and ALCs. A share of such companies in total number of failed companies has increased for 82% compared to 2011 with only 67%. The share of open and closed Joint Stock Companies has not significantly change with 15% in 2012 vs. 12% in 2011. And only 2.6% of non-commercial organizations have failed last year. 

In 2012 the two areas with the most significant number of bankruptcies were Volga Federal District and Central Federal District with 2,622 and 2,591 cases respectively.  The lowest rate of business failure was found in North Caucasian Federal District and Far Eastern Federal District with 613 and 267 cases respectively.

Among largest federal subjects of Russia by GDP with most bankruptcy cases for 2012 are Moscow (773 cases), Samara region (549 cases) and The Republic of Bashkortostan (489 cases). 

There is also decrease in total number of bankruptcies among sole proprietorship companies with 1,772 court cases, which is 7.9% less than in 2011. 

The most common cause for an entrepreneur to file for bankruptcy is an insufficient Field Tax Audit Report. The entrepreneur might be obligated to pay extra VAT if Tax Service officials discover undeclared contracts with fly-by-night companies made within last three years. In today's business practice in Russia arrears can exceed ten million rubles so it is reasonable to check your business partner's background before signing a contract. Make sure that the contractor has official registration and all required licenses and permissions to provide the kinds of services or products you intent to purchase. Also it is wise to ensure the company owns the equipment necessary to fulfill the contract.

Detailed information on Russian companies bankruptcy you can obtain from our specialists.