Credinform Information Agency prepared a ranking “Debt/equity ratio of perfumery and cosmetics producers in the Russian Federation”. For this ranking, the Russian producers of perfumery and cosmetics with highest revenues were selected. Then, these companies were rated by debt/equity ratio.
Debt/equity ratio is the index that characterizes the proportion between borrowed funds and equity, which are used for funding the company’s activities, i.e. how much borrowed funds was attracted by company for 1 ruble of equity. This index is calculated as a ratio of liabilities of the company to equity. Its target value, according to the order of the Ministry of Economy of Russia, shall be not less than 0.7. The economic literature provides the recommended value of ≤ 1. The excess of this indicator means dependence of the enterprise on external funding sources (credits and loans) and, consequently, the loss of financial stability. At the same time, the debt and equity ratio should not be negative.
The investors use debt/equity ratio first of all for determination of risks related to purchase of shares or bonds. The higher is the ratio, the higher are the risks related to investment of funds in this company. Therefore, the companies with high debt/equity ratio will have to offer the investors with a higher interest rate on bonds and to suffer problems with sale of its shares.
|N||Name||INN||Turnover in 2011, ml rub.||D/Eratio||GLOBAS-i® SolvencyIndex|
|2||Unicosmetics LLC||7826704356||2,441.45||0.23||170 (highest)|
|3||L’Oreal CJSC||7726059896||29,224.68||0.78||187 (highest)|
|4||Arnest OJSC||2631006752||5,155.38||0.83||201 (high)|
|5||SvobodaCosmeticCompany OJSC||7714078157||2,547.69||1.02||187 (highest)|
|6||Faberlic OJSC||5001026970||4,857.79||1.14||192 (highest)|
|7||Kalina Concern LLC||6685018127||12,519.74||1.87||173 (highest)|
|8||Vesna Perfumery and Cosmetics Company OJSC||6311064600||2,091.86||2.91||262 (high)|
|9||Mezoplast CJSC||7721025967||2,601.13||3.10||232 (high)|
|10||Oriflame Cosmetics LLC||7704270172||19,114.80||9.55||306 (satisfactory)|
Analysis of the table shows that only four companies among ten biggest perfumery and cosmetics producers - Nevsky cosmetics OJSC, Unicosmetics LLC, L’Oreal CJSC and Arnest OJSC – have the debt/equity ratio not exceeding the target indicator. Svoboda Cosmetic Company OJSC and Faberlic OJSC have slight ratio deviation.
High value of short term liabilities and accounts payable resulted in excess of target debt/equity ratio of Svoboda Cosmetic Company OJSC, Faberlic OJSC, Kalina Concern LLC, Vesna Perfumery and Cosmetics Company OJSC and Mezoplast CJSC.
Presence of uncovered loss, according to the results of 2011, prevented Oriflame Cosmetics LLC from retaining of the ratio within the target index value, therefore, it achieved the rate of 9.55. Negative result of this coefficient along with uncovered loss in the structure of financial indicators of the company affected the evaluation of financial situation of the company; thereby, Credinform Agency assigned this enterprise with satisfactory solvency index.
Therefore, when having high ratio value, the organization looses its financial independence and its financial position becomes extremely unsustainable. Fore these organizations, it appears more difficult to attract additional loans. Accordingly, the companies should pay higher attention to their debt burden.
Credinform Information Agency offers you a ranking of solvency of Russian textile producing companies. For this ranking, the companies of textile industry with highest revenues have been selected and ranked upon reduction of solvency index. This index means the equity share in total sources of funding of organization and shows the company’s dependence on external loans.
Recommended index value – over 0.5.
|N||Name||INN||Turnover in 2011,
|1||Peredovaya Tekstilshchitsa Silk Factory CJSC||5018035099||1,550.31||0.48||208 (high)|
|2||ROSKO-Textile Assets LLC||3702080122||1,835.26||0.47||264 (high)|
|3||Donetsk Manufacture М CJSC||6145004835||796.77||0.19||279 (high)|
|4||Avangard OJSC||3326001750||774.58||0.16||292 (high)|
|5||Shuya Cotton Print Factory OJSC||3706008060||2,092.27||0.13||255 (high)|
|6||Chaykovsk Textile Company LLC||5920015180||1,573.36||0.11||275 (high)|
|7||Bryansk Worsted Factory LLC||3255510846||770.07||0.01||295 (high)|
|8||Teykovsky Silk and Cotton Factory LLC||3704569864||3,124.19||-0.002||310 (satisfactory)|
|9||Nevsky Prospekt LLC||3702548837||919.53||-0.03||294 (high)|
|10||Ivanovo Textile Factory CJSC||3728026049||775.24||-0.25||247 (high)|
No company from TOP-10 by turnover managed to achieve the mentioned ration (0.5). Only two of them have approaching value: Peredovaya Tekstilshchitsa Silk Factory CJSC and ROSKO-Textile Assets LLC. The Agency assigned high solvency index to these companies, which confirms their ability to repay their debenture timely.
The equity share of the next five companies of the ranking (Donetsk Manufacture М OJSC, Avangard OJSC, Shuya Cotton Print Factory OJSC, Chaykovsk Textile Company LLC and Bryansk Worsted Factory LLC) varies from 19% to 1%. The index value shows the potential; ability to repay debts timely. However, such low ration of solvency coefficient requires the companies to apply measures for strengthening financial positions through mobilization of diversion of funds to current assets.
Teykovsky Silk and Cotton Factory LLC, Nevsky Prospekt LLC and Ivanovo Textile Factory CJSC have negative solvency index that means negative value of their equity. In this situation, improvement of the companies’ position is possible through optimization of profit activity that is through creation of the source of equity – the retained earnings. An alternative variant for restoration of positive equity ration, and consequently the solvency index is the attraction of directed financing and receipts. In short term, the support for solvency of enterprises with negative equity is possible through high turnover of company’s assets.
Solvency means the capability of an enterprise to repay their debenture. In good financial conditions the enterprise enjoys sustainable solvency; in bad conditions, it suffers regular or permanent insolvency. The best variant is when a company always has free funds sufficient for existing liabilities. But the company retains solvency also it has insufficient free finds or has no such funds at all, but the enterprise is able to sell out its assets quickly and to pay the creditors.