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.

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.