Article
Audit of financial statements for small businesses

Information agency Credinform has prepared a review of trends in activity of companies that meet the criteria for mandatory audit of financial statements.

The largest companies (ТОP-500) that meet the updated criteria for mandatory audit of financial statements in terms of annual revenue were selected according to the data from the Statistical Register and the Federal Tax Service for the latest available periods (2014 - 2019). The company selection and analysis were based on data of the Information and Analytical system Globas.

Net assets is a ratio reflecting the real value of company's property. It is calculated annually as the difference between assets on the enterprise balance and its debt obligations. The ratio is considered negative (insufficiency of property), if company’s debt exceeds the value of its property.

The largest company in terms of net assets is JSC INDUSTRIAL RECONSTRUCTION AND DEVELOPMENT OIL FUND, INN 7702028070, Moscow. In 2019 net assets of the company amounted to 26 billion RUB.

The smallest size of net assets in TOP-500 had LLC STIMUL-T, INN 7017007293, Tomsk region. The lack of property of the company in 2019 was expressed in negative terms -7 billion RUB.

For the last six years, the average industry values of net assets showed the growing tendency with negative dynamics of growth rates (Picture 1).

Picture 1. Change in average net assets value in 2014 – 2019 Picture 1. Change in average net assets value in 2014 – 2019

For the last six years, the share of ТОP-500 enterprises with lack of property is decreasing (Picture 2).

Picture 2. The share of enterprises with negative net assets value in ТОP-500 in 2014-2019 Picture 2. The share of enterprises with negative net assets value in ТОP-500 in 2014-2019

Sales revenue
In 2019, the total revenue of 10 largest companies amounted to 11% from ТОP-500 total revenue (Picture 3). This fact testifies the high level of capital concentration within this group of enterprises.

Picture 3. Shares of TOP-10 in TOP-500 total revenue for 2019 Picture 3. Shares of TOP-10 in TOP-500 total revenue for 2019

n general, the growing trend in sales revenue with negative dynamics of growth rates is observed (Picture 4).

Picture 4. Change in average revenue in 2014 – 2019 Picture 4. Change in average revenue in 2014 – 2019

Profit and loss
The largest company in terms of net profit is also JSC INDUSTRIAL RECONSTRUCTION AND DEVELOPMENT OIL FUND, INN 7702028070, Moscow. In 2019 the company’s profit amounted to 4 billion RUB.

For the last six years, the average profit values show the growing tendency with negative dynamics of growth rates (Picture 5).

Picture 5. Change in average profit (loss) in 2014 – 2019 Picture 5. Change in average profit (loss) in 2014 – 2019

Over a six-year period, the average net profit values of ТОP-500 show the growing tendency, along with this the average net loss is decreasing (Picture 6).

Picture 6. Change in average net profit/loss of ТОP-500 companies in 2014 – 2019 Picture 6. Change in average net profit/loss of ТОP-500 companies in 2014 – 2019

Main financial ratios
For the last six years, the average values of the current liquidity ratio were higher than the recommended values - from 1,0 to 2,0, with growing trend (Picture 7).

The current liquidity ratio (ratio of total working capital to short-term liabilities) shows the sufficiency of company’s assets to meet short-term obligations.

Picture 7. Change in average values of current liquidity ratio in 2014 – 2019 Picture 7. Change in average values of current liquidity ratio in 2014 – 2019

Within six years, the downward trend of the average values of ROI ratio is observed (Picture 8).

The ROI ratio is calculated as a ratio of net profit to sum of stockholder equity and long-term liabilities and shows the return from equity involved in commercial activities and long-term borrowed funds.

Picture 8. Change in average values of ROI ratio in 2014 – 2019 Picture 8. Change in average values of ROI ratio in 2014 – 2019

Assets turnover ratio is the ratio of sales revenue and company’s average total assets for a period. It characterizes the effectiveness of using of all available resources, regardless the source of their attraction. The ratio shows how many times per year the full cycle of production and circulation is performed, generating the corresponding effect in the form of profit.

For the last six years, this business activity ratio demonstrated the decreasing trend (Picture 9).

Picture 9. Change in average values of assets turnover ratio in 2014 – 2019 Picture 9. Change in average values of assets turnover ratio in 2014 – 2019

Main regions of activity
ТОP-500 companies are unequally located across the country and registered in 66 regions of Russia. More than 47% of the largest enterprises in terms of revenue are located in Moscow, Moscow region and Saint Petersburg Picture 10).

Picture 10. Distribution of TOP-500 revenue by the regions of Russia Picture 10. Distribution of TOP-500 revenue by the regions of Russia

Financial position score
An assessment of the financial position of TOP-500 companies shows that almost the half has above average financial position (Picture 11).

Picture 11. Distribution of TOP-500 companies by financial position score Picture 11. Distribution of TOP-500 companies by financial position score

Solvency index Globas
Most of TOP-500 companies got superior/high and strong/medium Solvency index Globas, this fact shows the ability of the companies to meet their obligations in time and fully (Picture 12).

Picture 12. Distribution of TOP-500 companies by Solvency index Globas Picture 12. Distribution of TOP-500 companies by Solvency index Globas

Conclusion
A complex assessment of small businesses that meet the criteria for mandatory audit of financial statements, taking into account the main indexes, financial ratios and indicators, demonstrates the presence of positive trends within 2014-2019 (Table 1).

Table 1. Favorable and unfavorable trends, assessment factors
Trends and assessment factors Relative share, %
Dynamics of average net assets value up10
Growth/drawdown rate of average net assets value down-10
Increase / decrease in the share of enterprises with negative net assets up10
The level of capital concentration up10
Dynamics of average net profit up10
Growth/drawdown rate of average revenue down-10
Dynamics of average profit (loss) up10
Growth/drawdown rate of average profit (loss) down-10
Increase / decrease in average net profit of companies up10
Increase / decrease in average net loss of companies up10
Increase / decrease in average values of current liquidity ratio up5
Increase / decrease in average values of ROI ratio down-10
Increase / decrease in average values of assets turnover ratio, times down-10
Regional concentration down-10
Financial position (the largest share) up10
Solvency index Globas (the largest share) up10
Average value of factors up2,2

вверх favorable trend (factor), вниз unfavorable trend (factor)

Ranking
Liabilities and assets in construction

Information agency Credinform represents a ranking of the largest construction companies having a potential opportunity to carry out a tax monitoring. The companies engaged in construction of buildings and structures meeting the new criteria for tax monitoring with the largest volume of annual revenue (TOP-10 and TOP-100) were selected for the ranking, according to the data from the Statistical Register and the Federal Tax Service for the latest available periods (2017 - 2019). They were ranked by the ratio of assets and liabilities (Table 1). The selection and analysis was based on the data of the Information and Analytical system Globas.

Liabilities to assets ratio shows the share of assets financed by loans. The standard value for this ratio is from 0.2 to 0.5

Sales revenue and net profit show the scale of the company and the efficiency of its business, and the ratio of liabilities and assets indicates the risk of insolvency of the company.

Exceeding the upper standard value indicates excessive debt load, which can stimulate development, but negatively affects the stability of the financial position. If the value is below the standard value, this may indicate a conservative strategy of financial management and excessive caution in attracting new borrowed funds.

In order to get the most comprehensive and fair picture of the financial standing of an enterprise it is necessary to pay attention to all combination of indicators and financial ratios.

Table 1. Net profit, revenue, ratio of liabilities and assets, solvency index Globas of the largest Russian construction companies (TOP-10)
Name, INN, region Revenue, million RUB Net profit (loss), million RUB Ratio of liabilities and assets (x), from 0,2 to 0,5 Solvency index Globas
2018 2019 2018 2019 2018 2019
1 2 3 4 5 6 7 8
MONARCH
INN 7714950480 Moscow
up18 910 down17 436 up127 down116 up0,95 down0,98 233 Strong
OOO MIP-STROI #1
INN 7701394860 Moscow
up56 995 down53 932 down10 up99 up0,98 up0,98 272 Medium
JSC PIK-Industries
INN 7729755852 Moscow
up26 948 up44 616 up1 792 down1 263 down1,01 up0,98 275 Medium
RENAISSANCE HEAVY INDUSTRIES LLC
INN 7802772445 Moscow
up37 662 up42 884 up4 732 down2 079 up0,83 down0,94 245 Strong
Fodd
INN 7729355935 Moscow
up19 640 up23 853 up262 up314 up0,97 up0,92 176 High
JSC VOSTOKNEFTEZAVODMONTAZH
INN 0277015293 Republic of Bashkortostan
down11 047 up18 231 down82 up405 up0,89 up0,88 208 Strong
PIK GROUP
INN 7713011336 Moscow
up25 343 down24 572 up15 137 down306 down0,74 down0,75 233 Strong
RENAISSANCE CONSTRUCTION LTD
INN 7708185129 Moscow
up44 512 down25 720 up1 290 up2 676 up0,94 up0,74 201 Strong
OOO ENERGO-STROI
INN 7801174139 Saint Petersburg
down8 713 up24 118 up229 up1 640 down0,92 up0,74 171 Superior
LENSPETSSMU
INN 7802084569 Saint Petersburg
down15 270 up17 182 up4 374 up6 441 down0,68 down0,71 217 Strong
Average value for TOP-10 up26 504 up29 254 up2 804 up1 534 down0,89 up0,86  
Average value for TOP-100 up8 802 down7 789 down30 down-289 down0,81 down0,81  

вверх growth of indicator to the previous period, вниз decrease of indicator to the previous period

The average indicator of the ratio of liabilities and assets of TOP-10 and TOP-100 is above the standard value. Indicators of six companies show the positive dynamic to move toward the standard value in 2019.

Picture 1. Ratio of liabilities and assets, and revenue of the largest construction companies (TOP-10) Picture 1. Ratio of liabilities and assets, and revenue of the largest construction companies (TOP-10)

Over the past 6 years, the industry average values of the ratio of liabilities and assets of TOP-100 have a positive trend to move toward the standard value (Picture 2).

Picture 2. Change in the industry average values of the ratio of liabilities and assets of the TOP-100 largest construction companies in 2014 – 2019 Picture 2. Change in the industry average values of the ratio of liabilities and assets of the TOP-100 largest construction companies in 2014 – 2019