The sequence of calculating the margin of financial strength of the enterprise. Determination of break-even and financial safety margin. Methods for adjusting the margin of financial strength

Financial safety margin is an indicator financial sustainability the enterprise, which determines to what level the enterprise can reduce its production without incurring losses.

There is another definition of this term.

The financial safety margin of an enterprise is the ratio of the difference between the current sales volume of a product and its sales volume at the break-even point in percentage terms. Thus, the higher this indicator, the more stable the company is, and the less likely it is the risk of losses.

In other words, the margin of financial strength shows to what level the amount of sales proceeds can be reduced before the critical revenue is reached. With a further decrease in the amount of revenue, the enterprise will begin to bring losses, this is determined by subtracting its critical value from the total revenue. It can also be easily calculated using the indicators of the analysis of values \u200b\u200bat the break-even point. The larger the given stock, the more stable the situation at the enterprise.

The formula for calculating the safety margin

Financial safety margin \u003d total revenue - critical revenue

Reducing costs, especially fixed ones, contributes to an increase in the margin of financial strength. There are 3 options for situations that affect this:

• First option - the enterprise is at the break-even point, when the volume of production and the volume of sales coincide.
• Second option - production volumes are higher than sales volumes.
• The third option is sales volumes are higher than production volumes.

In the presence of a surplus of production, the enterprise receives less profit and, accordingly, the indicator under consideration decreases. In this situation, production volumes should be planned more carefully. How to plan production is a must. But in the opposite situation, when sales volumes exceed production volumes, the financial stability and profit of the enterprise is greater, but the dependence of the enterprise on counterparties increases, for this reason, part of the financial strength will be imaginary.

What is Financial Strength Ratio?

Financial strength ratio - this is the ratio of the volume of the financial strength of the enterprise to its total revenue in percentage terms, that is, how much revenue can be reduced (in percentage terms) before the enterprise finds itself in the zone of losses.

This ratio shows that part of the asset that is financed from sustainable sources, or in other words, the share of those financial sources that organization can be used for a long time in its activities.

The formula for calculating the coefficient of financial strength:

Financial strength ratio \u003d ((total revenue) - (critical revenue) / (total revenue)) x 100

The amount of coverage and the coefficient of financial strength are interconnected by a linear relationship:

Profit (%) \u003d (coverage / total revenue) x (financial strength ratio)

Total

In order to raise the value of the strength factor of the enterprise, it is necessary to carry out the following measures:

1. Increase total sales revenue.

1. Increase the number of sales.
2. Raise sales prices.
3. Increase both the quantity and the price of sales.

2. Decrease the values \u200b\u200bat the break-even point.

1. Raise sales prices.
2. Improve the turnover structure through intensive promotion of products that have a large specific amount of coverage as a percentage of the price.

3. Reduce costs.

1. Reduce variable costs.
2. Reduce fixed costs.
3. Reduce both fixed and variable costs at the same time.

4. Replace fixed costs with variable costs, for example, when switching to procurement from outside your own production.

The activity should bring positive profit, this is understandable. But there are situations (the reasons may be different) when things start to go badly for the company, it is necessary to reduce the volume of products produced and sold. The company no longer expects big profits, but at least zero profit, when expenses do not exceed revenues. But where is this threshold, upon crossing which the activity becomes unprofitable? How much can a company cut back on its work? What is the margin of financial stability?

Security zone

There is a “turning point” in the volume of production or sales, in which the costs of creating and marketing products are equal to the proceeds received. This is the break-even point, at the crossing of which the “everything is bad” stage begins. So, the "distance" from the existing sales volume to a given point is a kind of safety zone, that is, the financial strength of the enterprise.

Necessary indicators

To determine the extent to which a company can afford to reduce its revenue without incurring losses, the following data will be required:

Fixed and variable costs

Fixed costs do not depend on either production volumes or the selling price. No matter how many products are produced, these costs will be incurred: rent, lease, credit, utility payments, salary labor, etc.

Variable costs are directly related to the volume of production: the cost of materials and raw materials, the payment of piecework wages, etc. These costs appear either after income is received (for example, interest is paid to a sales manager after he has sold the product), or product manufacturing process. In both cases, expenses are fully controlled, money does not disappear anywhere. The same investments in spent materials let the unsold products remain with the enterprise in the form commodity stocks... It is the optimization of these costs that the company primarily deals with when the margin of financial strength dries up or is too small, and it is necessary to lower the break-even point.

Break-even point calculation

• Now that we have decided on the parameters of revenue and cost types, we will calculate the profitability threshold. This is the ratio of fixed costs for production and sales (Zpost) to the difference between revenue (B) and variable costs (Zper), that is, Tb \u003d Zpost / (B - Zper).
• The result will show how many units of product must be produced in order for the revenue to cover the costs. To get the result in monetary terms, the formula will look like this: B * Zpost / (B - Zper).

Financial strength ratio calculation

• Finally, the financial strength margin (Zfp) is determined using the following formula: Zfp \u003d (B - Wtb) / B * 100%, where B is the current sales volume, and Wb is the difference between the sales volume in the current period and the calculated value of the sales volume in break-even point.
• If you want to get the result not in monetary, but in kind, then you should substitute in this formula instead of revenue (B) the volume of sales in units of production.

Thus, the margin of financial strength is an indicator of the financial stability of a company, which gives an idea of \u200b\u200bthe permissible decrease in production and sales within the profitability threshold.

Financial safety margin is the difference between the actual sales volume and the sales volume corresponding to the break-even point.

Determination and analysis of the margin of financial strength is made in the FinEkAnaliz program in the Cash flow analysis block.

Financial safety margin formula

Financial safety margin showshow much the company can reduce sales before incurring losses.

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Still found for a safety margin

1. Using operating leverage to determine financial stability and risk Based on the above indicators, we calculate the profit margin of profitability margin of financial strength and the strength of the impact of operating leverage The lower limit of the company's profitability is characterized by a break-even point
2. Multi-product break-even point Figure 1. Graphical method for determining the multi-product break-even point Financial strength margin 17 400 12 104 5 296 thousand rubles The calculation results are presented in
3. Margin analysis in business planning Traditionally, it is considered if the financial strength of the enterprise is less than 10%, the production risk is high Therefore, the operational leverage should
4. Assortment and profit management based on marginal analysis Let's compare the break-even sales volume with the actual one and determine the financial strength of the enterprise in kg and thousand rubles Table 5. Calculation of the financial strength
5. Break-even analysis of the enterprise's production process Break-even point thousand rubles 355.2 195.8 52.1 49.7 36.1 689 Financial strength margin kg 519.8 566.7 268.6 119 94.5 3925 Financial strength margin thousand rubles
6. Financial security of the company: an analytical aspect Let us give the rationale for their inclusion The margin of financial strength of the FFP is equal to the difference between the actual sales volume Vfact and the critical Vcr He
7. Marginal analysis of financial results from the sale of products at JSC Chishminskoye of the Republic of Bashkortostan Critical point of sales volume n 5 n 4 3212530.0 3062022.0 3203413.0 -9 118.0 7. Financial strength reserve n 1-n b 2,241,067, 0 3 794 348.0 3 744 393.0
8. Formation of the production program of a machine-building enterprise based on operational analysis The value of the reciprocal to the force of the operating leverage is a margin of financial strength It is also found as the difference between sales proceeds and the profitability threshold
9. The effect of operating leverage in the system of marginal analysis of FPP financial strength margin PR profitability threshold OR operating leverage P operating profit P operating costs
10. The financial potential of the enterprise: concept, essence, measurement methods These flows are subsystems of the financial system of the enterprise, and the goals of each of them usually coincide with the overall goal of the financial system; growth of financial potential; development of the enterprise; growth of stability of the financial system, etc. in the process of formation of financial resources from the income of the enterprise can be measured by a well-known indicator - a margin of financial strength, but with some clarification of its economic interpretation.
11. Increasing the performance of entrepreneurial activities of machine-building enterprises in the region based on the operational analysis of profit The main elements of the operational analysis are the threshold values \u200b\u200bof the performance indicators of the enterprise critical production volume break-even point profitability threshold ratio of fixed costs to the share of marginal income in sales revenue margin of financial strength the difference between sales revenue and the threshold profitability It is very important for an enterprise
12. The associated effect of operational and financial leverage in the management of the financial condition of the organization To determine the margin of financial strength of JSC Thunder, it is necessary to calculate the profitability threshold This indicator is needed in order to
13. Operating, financial and tax leverage: interpretation and ratio It is traditionally considered that the margin of financial strength should be more than 10%, therefore, the operating leverage should be limited to 10, in
14. Calculation of the break-even point using analytical accounting data. Break-even point p 3 p 11 194923.08 227030.43 32107 13 Financial strength margin% p 4 p 12 х 100-100 75.85% 86% 10.15% 14. Operational
15. Methodology for analyzing the financial results of a manufacturing enterprise according to financial statements Break-even revenue 1167197 467134 - 700063 10 Financial safety margin Amount of financial safety margin Actual revenue% 28.1 14.8 - 13.3 If
16. Analytical substantiation of the mechanism for applying discounts in settlements with debtors Also, one should not forget about the effect of operating leverage, the greater the margin of financial strength, the slower the rate of growth of profitability Thus, a discount is a rather attractive way
17. Features of the analysis of consolidated statements (for example, analysis of indicators of financial leverage) The results of calculating the critical sales volume and the financial safety margin are shown in Table 6. The critical sales volume is calculated for net profit taking into account ... The critical sales volume for the profits of controlling shareholders is slightly higher since it must cover not only fixed operating expenses and interest payments on borrowed capital, but also expenses on quasi-equity capital. The financial safety margin, which is already quite large, increases due to the increase corporate profit margin of financial strength for net profit% 92.17 95.37 margin of financial strength for net profit of controlling shareholders
18. Directions of the analysis of the financial condition of the organization in relation to management goals and user needs Such analysis allows solving the following management tasks to determine the minimum permissible sales volume at which all costs associated with the implementation of the company's core activities will be covered; to establish a margin of financial strength of the company and its attractiveness in the market of goods and services. factors influencing
19. Investigation of the problems of underinvestment and reinvestment of Russian companies depending on the stage of their life cycle Industry differences can also exist for the level of retained earnings in total assets - in some industries it is beneficial for a company to have a margin of financial strength if their operating indicators are eolatil or strongly dependent on market conditions and
20. Justification of management decisions based on marginal analysis The excess of the actual proceeds from sales over the profitability threshold is determined by the margin of financial strength of the enterprise 3 Consider the method of marginal analysis based on the output data of the enterprise LLC

Financial safety margin is the difference between the actual sales volume and the sales volume corresponding to the break-even point.

Determination and analysis of the margin of financial strength is made in the FinEkAnaliz program in the Cash flow analysis block.

Financial safety margin formula

Financial safety margin showshow much the company can reduce sales before incurring losses.

Was this page helpful?

Still found for a safety margin

1. Using operating leverage to determine financial stability and risk Based on the above indicators, we calculate the profit margin of profitability margin of financial strength and the strength of the impact of operating leverage The lower limit of the company's profitability is characterized by a break-even point
2. Multi-product break-even point Figure 1. Graphical method for determining the multi-product break-even point Financial strength margin 17 400 12 104 5 296 thousand rubles The calculation results are presented in
3. Margin analysis in business planning Traditionally, it is considered if the financial strength of the enterprise is less than 10%, the production risk is high Therefore, the operational leverage should
4. Assortment and profit management based on marginal analysis Let's compare the break-even sales volume with the actual one and determine the financial strength of the enterprise in kg and thousand rubles Table 5. Calculation of the financial strength
5. Break-even analysis of the enterprise's production process Break-even point thousand rubles 355.2 195.8 52.1 49.7 36.1 689 Financial strength margin kg 519.8 566.7 268.6 119 94.5 3925 Financial strength margin thousand rubles
6. Financial security of the company: an analytical aspect Let us give the rationale for their inclusion The margin of financial strength of the FFP is equal to the difference between the actual sales volume Vfact and the critical Vcr He
7. Marginal analysis of financial results from the sale of products at JSC Chishminskoye of the Republic of Bashkortostan Critical point of sales volume n 5 n 4 3212530.0 3062022.0 3203413.0 -9 118.0 7. Financial strength reserve n 1-n b 2,241,067, 0 3 794 348.0 3 744 393.0
8. Formation of the production program of a machine-building enterprise based on operational analysis The value of the reciprocal to the force of the operating leverage is a margin of financial strength It is also found as the difference between sales proceeds and the profitability threshold
9. The effect of operating leverage in the system of marginal analysis of FPP financial strength margin PR profitability threshold OR operating leverage P operating profit P operating costs
10. The financial potential of the enterprise: concept, essence, measurement methods These flows are subsystems of the financial system of the enterprise, and the goals of each of them usually coincide with the overall goal of the financial system; growth of financial potential; development of the enterprise; growth of stability of the financial system, etc. in the process of formation of financial resources from the income of the enterprise can be measured by a well-known indicator - a margin of financial strength, but with some clarification of its economic interpretation.
11. Increasing the performance of entrepreneurial activities of machine-building enterprises in the region based on the operational analysis of profit The main elements of the operational analysis are the threshold values \u200b\u200bof the performance indicators of the enterprise critical production volume break-even point profitability threshold ratio of fixed costs to the share of marginal income in sales revenue margin of financial strength the difference between sales revenue and the threshold profitability It is very important for an enterprise
12. The associated effect of operational and financial leverage in the management of the financial condition of the organization To determine the margin of financial strength of JSC Thunder, it is necessary to calculate the profitability threshold This indicator is needed in order to
13. Operating, financial and tax leverage: interpretation and ratio It is traditionally considered that the margin of financial strength should be more than 10%, therefore, the operating leverage should be limited to 10, in
14. Methodology for analyzing the financial results of a manufacturing enterprise according to financial statements Break-even revenue 1167197 467134 - 700063 10 Financial safety margin Amount of financial safety margin Actual revenue% 28.1 14.8 - 13.3 If
15. Features of the analysis of consolidated statements (using the example of analysis of financial leverage indicators) The results of calculating the critical sales volume and financial safety margin are shown in Table 6. The critical sales volume is calculated for net profit, taking into account ... The critical sales volume for the profits of controlling shareholders is slightly higher because it should to provide coverage not only of fixed operating expenses and interest payments on borrowed capital, but also expenses on quasi-equity capital The financial safety margin, which is already quite large, increases due to the increase in the corporation's profits Financial strength margin for net profit% 92.17 95.37 Financial margin strength for the net profit of controlling shareholders
16. Analytical substantiation of the mechanism for applying discounts in settlements with debtors Also, one should not forget about the effect of operating leverage, the greater the margin of financial strength, the slower the rate of growth of profitability Thus, a discount is a rather attractive way
17. Calculation of the break-even point using analytical accounting data. Break-even point p 3 p 11 194923.08 227030.43 32107 13 Financial strength margin% p 4 p 12 х 100-100 75.85% 86% 10.15% 14. Operational
18. Directions of the analysis of the financial condition of the organization in relation to management goals and user needs Such analysis allows solving the following management tasks to determine the minimum permissible sales volume at which all costs associated with the implementation of the company's core activities will be covered; to establish a margin of financial strength of the company and its attractiveness in the market of goods and services. factors influencing
19. Investigation of the problems of underinvestment and reinvestment of Russian companies depending on the stage of their life cycle Industry differences can also exist for the level of retained earnings in total assets - in some industries it is beneficial for a company to have a margin of financial strength if their operating indicators are eolatil or strongly dependent on market conditions and
20. Justification of management decisions based on marginal analysis The excess of the actual proceeds from sales over the profitability threshold is determined by the margin of financial strength of the enterprise 3 Consider the method of marginal analysis based on the output data of the enterprise LLC

The financial strength margin shows how prepared the company is for a negative market development scenario. The calculation of the indicator allows you to quickly respond to a changed situation. The article contains formulas, calculation examples, normative values and ways to improve the financial stability of the business.

What is financial strength

The financial strength margin is a financial ratio that makes it possible to determine how prepared an enterprise is to reduce production levels. A decline can occur by different reasons, predictable and unpredictable. The margin of financial strength allows you to quickly respond to the changed market situation by taking timely steps - launching a new product, expanding the sales region, reducing the price of the product, and performing other measures.

The greatest influence on the financial strength of an organization is exerted by total costs, consisting of variable and fixed costs. It is their size that determines the stability of the company, and it is in the costs that the greatest potential for increasing the stock is hidden.

Financial safety margin formula

The financial strength safety factor is calculated subject to a number of conditions:

1. For the billing period, logistic stocks (in the warehouse) are not taken into account, it is assumed that sales completely select all released goods without a remainder.
2. The range of manufactured goods does not change and remains constant throughout the analyzed stage of time.
3. and the entire study period does not change.
4. There is a direct linear relationship between variable costs and the volume of goods produced or sold.

The calculation can be done in relative and absolute terms.

in monetary terms, it looks like this:

ZFP \u003d (Vp - Wtb) / Vp,

VP - sales proceeds;

VTB - revenue at the break-even point

Calculation of the absolute value:

ZFP \u003d Vp - Wtb

Calculation of the value as a percentage: FFP \u003d ((Vp - Wtb) / Vp) * 100%

Calculation in kind

The formula for calculating in natural terms is as follows:

ZFP n \u003d (Opr - OPtb) / Opr,

ZFP n - the safety factor of financial strength in physical terms;

OPtb - sales volume at the break-even point, pieces;

Def - current or planned production volume, pieces.

Calculation of the absolute value:

ZFP n \u003d Opr - OPtb

Calculating the value as a percentage:

ZFP n \u003d ((Opr - OPtb) / Opr) * 100%

There are also additional calculation methods that are performed using other parameters. economic activity companies.

How to assess the financial strength of a debtor

It is mandatory to assess the financial strength margin of the debtor if he asks for a significant deferral of payment or a large loan. This will make sure he doesn't have a loss until he pays off.

Calculation taking into account net profit

The formula for calculating the stock of financial strength taking into account net profit is as follows:

ZFP \u003d PE / (PE + Rpost),

PE is the company's net profit;

Rpost - fixed costs.

Such a calculation is based on the amount of generated net profit, as a result, the efficiency of sales is shown, not the production of goods.

Calculation of the stock of financial strength, taking into account the indicator of production capacity

It should be noted separately that when preparing investment plan and the design of production, there are some difficulties in determining the safety factor of financial strength. The fact is that in this case there is no production and sale of goods, so there is nowhere to get the data. Then it makes sense to calculate Kzfp using the production capacity indicator.

The formula for calculating the stock of financial strength, taking into account the indicator of production capacity in monetary terms:

ZFP \u003d PM - OPtb,

PM - planned production capacity;

OPtb - sales volume at the break-even point, pieces.

Calculation of the value as a percentage: ZFP \u003d (PM - OPtb) / PM * 100%.

Graphical representation of the financial safety margin

The graphical display of FFP and other parameters is shown in the figure.

Picture... The financial strength of the enterprise

X-axis - volume goods sold in kind;

Y-axis - the volume of goods sold in monetary terms.

It can be seen that the financial strength margin grows or decreases as quickly as possible, gradually decreasing the speed with distance from this point.

A high level indicates that the company is not facing the risk of bankruptcy, and production, logistics and sales systems are operating at a level sufficient to maintain profitability that is interesting for potential investors.

Normative value

Table... Financial strength margin, standard value

It is necessary to take into account the price risk that arises when the price at which the goods are sold changes. This risk is displayed using such a parameter as "operating leverage", in foreign practice the word Leverage is used - leverage.

The impact of operating financial leverage is that variable and fixed costs have a disproportionate impact on the bottom line of an enterprise when the price or volume of sales changes. If the volume of fixed costs in the cost of goods produced is high, then the impact of operating leverage will have a significant impact. However, if there is a significant increase in sales in physical terms, then the volume of fixed costs in the cost of goods will decrease and, accordingly, the influence of operating leverage will decrease.

The financial safety margin is associated with the operating leverage, the following formula is used to calculate the leverage value:

OFR \u003d 1 / ZFP;

where OFR - operational financial leverage;

The higher the obtained value of the operating leverage, the less becomes the financial strength of the enterprise and vice versa. Excessive increase in leverage brings the company to the threshold of profitability, which entails the loss of control over financial development. It also indicates an increase in fixed and variable costs and a significant gap between revenue and profits. Such business development can occur in the following cases:

• investing in modernization, innovation and new production solutions and technologies;
• expansion of capacities and recruitment of new personnel;
• a decrease in the level of quality of products, a drop in labor productivity, an increase in rejects;
• unjustified increase in the level of remuneration of low-skilled personnel;
• reduction of the selling price of the goods produced;
• decrease in sales below the level set by the plan.

Capacity development and investment in innovation and modernization must be based on a clear understanding of the situation and an analysis that shows that fixed costs will not drag the financial strength of the organization down.

How to improve financial strength

The margin of financial strength with a high degree of accuracy reflects the real state of affairs of the company, its economic condition, gives quantification quality of production activities. The strongest influence on strength is exerted by the sales system of goods, the logistics network and the number of trading partners. The more successfully the manufactured product is sold or the more in demand the service provided, the higher the strength indicator. Experts note that in order to maintain the financial strength at high level, it is necessary to give high priority to creating conditions for increasing the level of sales and increasing revenue.

To strengthen the financial strength of the company, it is necessary:

• increase sales revenue by increasing the price and quality level of goods;
• increase revenue by increasing sales volumes and simultaneously increase production capacity;
• increase revenue through participation in tenders and through obtaining government orders;
• reduce the level of the break-even point by optimizing the structure of the assortment of goods and promoting the most profitable products;
• to reduce fixed and variable costs, including by searching for new suppliers of fuel and raw materials, reducing logistics costs, more rational use of resources, improving the quality of labor, introducing innovative production technologies, automating low-skilled labor.

Financial strength analysis must be carried out on a continuous basis, and the data for analysis must be available to potential investors and lenders. After all, the higher the coefficient, the more attractive the business for investment.