Leverage ratio of Russian outdoor clothes manufacturers

Information agency Credinform presents the ranking of Russian outdoor clothes manufacturers on leverage ratio. The largest by revenue companies in this industry for the last available in the Statistical register period (2014) were taken for the investigation. Further the Top-10 enterprises were ranked in the ascending order of leverage ratio value (Table 1).

Leverage ratio relates to the group of financial stability ratios. The group indicators are primarily of interest from the perspectives of long-term credits and investments possible provision, due to the fact that they characterize the company’s ability to meet its long-term liabilities. Thus leverage ratio is calculated as a ratio of total borrowed assets to net worth amount and shows how many units of borrowed assets were employed by the company on every unit of own funding sources. 

Recommended value for the indicator under consideration is less than 1. At the same time debt/equity ratio can’t be negative therefore the ratio value from 0 to 1 is one of the indicators of company’s high ability to meet its liabilities. 

Table 1. Leverage ratio and solvency index of the largest outdoor clothes manufacturers (TOP-10)
№ п/пName, tax numberRegionRevenue 2013, th RUBRevenue 2014, th RUBRevenue 2014 to 2013, %Leverage ratio, (х)Solvency index Globas-i
1 PAO Moskovskoe OAO Bolshchevichka
Tax number 7708029923
Moscow 744 325 715 191 96 0,04 186 Highest
2 NAO ZAO Pskovskaya shveinaya fabrika Slavyanka
Tax number 6027014530
Pskov region 1 024 883 1 047 484 102 0,07 168 Prime
3 PAO OAO Sinar
Tax number 5406014187
Novosibirsk region 804 309 845 252 105 0,44 203 High
4 OOO Chulochno-trikotazhnaya fabrika
Tax number 2130079012
Chuvash Republic 492 470 519 477 105 0,52 260 High
5 OOO NTO Konsalt
Tax number 4207048574
Kemerovo region 1 274 720 1 245 517 98 0,68 167 Prime
6 NAO ZAO Korporatsiya Gloria Jeans
Tax number 6166034397
Rostov region 27 594 887 27 815 752 101 0,93 142 Prime
7 NAO ZAO Elis Fashion Rus
Tax number 6152001000
Rostov region 738 733 757 113 102 1,6 238 High
8 NAO ZAO Odezhda i moda
Tax number 3728026176
Ivanovo region 504 454 735 536 146 2,2 190 Prime
9 ООО Shanti
Tax number 7730041122
Moscow 149 924 609 827 407 -8,52 280 High
10 ООО Volzhanka
Tax number 6312119820
Samara region - 2 199 765 - - 352 Satisfactory

The analysis of the attained results showed that the leverage ratio of 6 companies from the TOP-10 satisfy the standards. The industry-average indicator in 2014 amounted to 1,39 which in the whole speaks for high debt load of industry enterprises.

All the TOP-10 companies except for OOO Volzhanka were given prime and high solvency index Globas-i®. It characterizes them as financially stable. For OOO Volzhanka the calculations weren’t made due to absence of the financial account for 2013.

Figure 1. Leverage ratio of the largest outdoor clothes manufacturers in Russia (TOP-10)

Leverage ratio of the largest outdoor clothes manufacturers in Russia

NAO ZAO Korporatsiya Gloria Jeans is an ultimate industry leader – its revenue volume outweighs the volumes of the nearest competitors. It is placed on the sixth spot of the ranking with leverage indicator that equals 0,93, which satisfies the standards. The company was given the prime solvency index Globas-i®.

NAO ZAO Elis Fashion Rus and NAO ZAO Odezhda i moda showed the leverage ratio values that exceed 1, i.e. higher than the recommended ones. This result gives evidence to excess drawings, which can adversely affect companies’ solvency in future. However they were given high and prime solvency index Globas-i® by the complex of financial and nonfinancial indicators.

OOO Shanti showed the negative value of the leverage ratio (-8,52), which bespeaks the negative values in the company’s net worth structure. This enterprise managed to increase the revenue volume by a factor of 4 in 2014 in comparison with 2013 on account of gaining credit in 2013-2014. However it received the net loss for this period. Nevertheless the company was given the high solvency index Globas-i® by the complex of financial and nonfinancial indicators.

The total revenue volume of the TOP-10 companies for 2014 amounted to 36,5 billion RUB., which is by 3% greater than the same indicator for 2013 by comparable range of companies.

In the whole the industry of outdoor clothes manufacture in Russia shows high growth dynamic in the period from 2011 to 2015. The data of Rosstat (Federal State Statistics Service) indicates it in the figure 2. 

Figure 2. Manufacture of clothes and its accessories in 2010 - 2015, th RUB (Rosstat data)

Leverage ratio of the largest outdoor clothes manufacturers in Russia

Enforcement of Compliance has been Strengthened Concerning the Establishment of “Financial Pyramids” (“Investment Pyramids”)

A new article «Activity on fund (assets) raising» to the Code of Administrative Offences came into effect by the Federal law No.54-FZ of 09.03.2016 “On Amendments to the Code of Administrative Offences of the Russian Federation”.

Financial Pyramids are considered fraudulent schemes where the income of investors is based on funds raised from next investors.

The new law has eliminated a long standing practice of raising funds and liquidating liabilities as the expense of additional investors. Based on past practices each “pyramid” was active, as a rule of thumb, from one up to three years in average. When the funds came to an end, a pyramid suddenly announced the termination of activity and founders absconded generally with large sums of money.

According to the Ministry of Internal Affairs of Russia, the activity of “financial pyramids” has even intensified in recent years. In 2014 the number of such entities exceeded 160, more than nine thousand individuals were affected and the damage amounted to over 24 million USD. The new law defines the illegal practice of a “financial pyramid” as follows: “An organization or entity raising funds or other assets (property) from individuals or legal entities, where the investors’ income is generated from the funds received from follow-on investors. Thus the pyramid never generates any other income from investments or legal trading activities.

The creation of financial (investment) pyramids as well as their advertising are in violation of the law. Penalties for individuals are set in the amount of from 70 to 700 USD or officials – from 280 to 1400 USD and for legal entities – from 7 000 to 14 000 USD. The administrative liability occurs if funds up to 20 000 USD are raised, for sums of over 20 000 USD a criminal liability is triggered. The relevant amendments to the Criminal Code are now under consideration in the State Duma of Russia: Individuals or legal entities raising big funds will be fined up to 14 000 USD or in the amount of salary of a convicted party for the period up to two years, or compulsory works or up to 4 years’ imprisonment; for extremely large funds raised stricter fines are imposed or prison terms up to 5 years as an alternative to the financial fines. “Financial pyramids” are considered a criminal activity will be single out in a separate article from the Article 159 of the Criminal Code of the RF “Fraud”.