The autonomy ratio is a convenient and effective indicator of the financial stability of a company. It is calculated as the ratio of equity capital to business assets, based on the balance sheet information (Form No. 1). The meaning of Equity to Total Assets is of interest to partners, creditors, investors, and owners. Its standard value is from 0.5. If the indicator approaches one, then the company is stable, but does not use debt financing enough, which hinders its growth.
Lenders are willing to cooperate with companies that are able to repay their financial obligations on time. Therefore, they assess in advance whether the company is able to cover its obligations with its own capital and reserves. This criterion also characterizes the financial stability of the business.
Autonomy coefficient(Equity to Total Assets - EQ/TA, KA) or indicator of financial independence is a relative financial indicator that allows you to determine the degree of dependence of a company on debt financing, as well as its ability to repay obligations using its own funds.
Reference! CA is used in the practice of arbitration managers, who are required to establish the financial condition of a company before starting bankruptcy proceedings in its respect (Resolution of the Government of the Russian Federation of June 25, 2003 No. 367 “On approval of the rules for conducting financial analysis by an arbitration manager”).
Analysts use the financial independence ratio to assess the financial strength of a business and assess the likelihood of its bankruptcy.
Reference! The inverse of the autonomy indicator is the financial dependence coefficient, and its analogue is the bankruptcy forecast coefficient.
The reduction in Equity to Total Assets is the first sign that the company requires checking for the likelihood of bankruptcy (bankruptcy forecast coefficient, capitalization ratio, etc.). If this trend is prolonged, then investors and business lenders should consider their injections.
Formula for calculating the autonomy coefficient
The current value of the EQ/TA indicator can be determined on the basis of information from reporting form No. 1 - the balance sheet. To do this, you need to take information from it:
- Total assets (p. 1300).
- Total equity capital and reserves (p. 1700).
Important point! When calculating the KA indicator, all assets are taken into account, regardless of their degree of liquidity.
The theory of financial analysis uses the following formula for determining EQ/TA:
KA = SK/SA, where:
CA - total assets;
SC - equity capital and reserve reserves.
In the practice of Russian companies, the above formula is expressed through the lines of the balance sheet (form No. 1):
KA = page 1300 / page 1700
Important point! If you add long-term liabilities to equity when calculating, you get a financial stability ratio.
Standard value of the indicator
The Equity to Total Assets indicator can be applied to organizations of any sector of the economy, any scale of activity and form of ownership. Its normative meaning is also universal and uniform for all business entities.
Important point! When conducting detailed financial analysis, they compare the obtained value with the average indicators in the selected sector of the economy.
When analyzing the indicator, it is important to take into account some assumptions:
- the higher the value of the financial autonomy indicator, the more stable the position of the enterprise seems;
- if the autonomy coefficient is close to 1, then it is believed that business development is hampered by insufficient use of debt financing.
Examples of coefficient calculation
The calculation and analysis of the EQ/TA indicator is most conveniently presented using the example of specific Russian companies. The objects of study were selected:
- oil company PJSC Bashneft;
- one of the leaders in online retail trade, NEPAO Yulmart.
Conclusion! An analysis of the financial independence of PJSC Bashneft showed that in 2015-2017. the company is becoming increasingly dependent on debt sources of financing. In 2017, the indicator falls below the normative limit. This state of affairs is due to the reorganization of the oil giant in 2015, which led to a gradual reduction in the amount of equity capital.
Conclusion! The Yulmart company's degree of independence from external sources of financing is growing due to the fact that, in conditions of an unstable macroeconomic situation and the volatility of the ruble exchange rate, it decided to follow the strategy of using its own sources of financing its activities.
The overall result of the analysis: the position of the Yulmart trading company in 2017 is more stable than that of the oil giant Bashneft. The sample shows an algorithm for using the autonomy coefficient formula in the Excel spreadsheet editor.
Financial ratio equal to the ratio equity capital and reserves to the amount of assets of the enterprise. The initial data for the calculation contains the organization's balance sheet.
It is calculated in the FinEkAnalysis program in the Financial Stability Score block as the Financial Independence Coefficient.
Autonomy coefficient - what it shows
Shows the share of the organization's assets that are covered by its own capital (provided by its own sources of formation). The remaining share of assets is covered by borrowed funds.
Investors and banks issuing loans pay attention to the value of this ratio. The higher the ratio, the more likely the organization is to pay off its debts using its own funds. The higher the indicator, the higher the financial independence of the enterprise.
Autonomy coefficient - formula
General formula for calculating the coefficient:
where line 490, line 700 are balance sheet lines (form No. 1)
Calculation formula based on the new balance sheet:
Autonomy coefficient - value
Regulatory limit K a > 0.5. The higher the ratio, the better the financial condition of the company. For in-depth financial analysis, the value of this ratio is compared with the average values for the industry to which the analyzed enterprise belongs.
The proximity of this value to one indicates a slowdown in the rate of development of the enterprise. By refusing to attract borrowed capital, the organization is deprived of an additional source of financing for the growth of assets (property), through which it is possible to increase income. At the same time, this reduces the risks of deterioration in financial solvency in the event of unfavorable developments in the situation.
Autonomy coefficient - diagram
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Synonyms
More found about the autonomy coefficient
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Coefficient of autonomy of sources of formation of reserves and costs Coefficient of autonomy of sources of formation of reserves and costs Coefficient of autonomy of sources of formation of reserves and costs - - Analysis of the capital structure and profitability of leading Russian oil and gas enterprises
When analyzing the capital structure of corporations, we calculated the following main coefficients: ownership coefficient, autonomy coefficient, financial dependence ratio, ratio of own and borrowed capital, maneuverability coefficient of own working capital. Autonomy coefficient characterizes the degree of provision of existing obligations with own capital. The minimum limit of this indicator is 1. - Vector method for predicting the probability of enterprise bankruptcy
In the first example given, the pairwise interdependent coefficients are the financial leverage ratio and the autonomy ratio, the current liquidity ratio and the working capital ratio. In the second example, they are pairwise interdependent - Comprehensive analysis of the company’s financial stability: coefficient, expert, factor and indicative
The following coefficients of financial stability can be used as such an integral indicator: coefficient of autonomy, coefficient of maneuverability, mobility of equity capital, level of financial leverage, coefficient of security of interest payable coefficients - Financial analysis of an enterprise - part 5
Indicators 2004 2005 Autonomy coefficient 0.259 0.615 Ratio of borrowed and own funds 2.855 0.626 Own maneuverability coefficient - On the standard values of coefficients when forming a rating assessment of the financial and economic condition of an enterprise
To adjust the standard values of indicators, the following logical premise should be recognized as fundamental: the maximum 100% financial stability of an enterprise can be provided that the autonomy coefficient K max A P4 BA is 1.0, i.e. the enterprise carries out its economic activities - The impact of IFRS on the results of the analysis of the financial position of PJSC Rostelecom
IFRS from RAS - 1 Financial independence coefficient > 0.5 0.444 0.356 -0.088 0.478 0.447 -0.031 2 Concentration ratio - Statistical analysis of the relationship between capital management indicators and the market value of public companies in Russia
According to the autonomy coefficient E A, the companies represented in the period 2000-2008 are quantitatively homogeneous V> - Financial analysis of an enterprise - part 4
Indicators 2002 2003 2004 Autonomy coefficient 0.442 0.182 0.259 Ratio of borrowed and own funds 1.262 4.488 2.855 Coefficient - Borrower default assessment
In addition, the autonomy coefficient and the indicator of the general degree of solvency, regardless of the type of functional connection, are significant by 1% - - Assessment of the market and financial stability of the enterprise
A B 1 2 3 1 Autonomy coefficient 0.334 0.274 0.329 2 Coefficient of provision of current assets with own working capital -0.369 -0.062 - Financial stability of the organization and criteria for the structure of liabilities
Thus, the level of financial stability can be judged by individual indicators from our chosen system of indicators for assessing financial stability, namely the autonomy coefficient, the ratio of debt and equity capital, the coefficient of concentration of borrowed capital. Strengthening the stability of the financial condition - Determination of standard values of financial stability coefficients for organizations of various types of economic activities in the context of the application of individual asset financing policies
Savitskaya proposed a methodology for calculating the standard level of the coefficient of autonomy of concentration of equity capital and financial leverage, depending on the chosen asset financing policy - Comprehensive analysis of the financial condition of an educational organization
The share of the financial result obtained in the total amount of own funds and obligations to creditors, the autonomy ratio decreased from 62 to 58% At the same time, the degree of dependence of the university on the use of funds increased - Study of the influence of the duration of operating and financial cycles on the financial stability of enterprises in the Tula region
The current liquidity ratio is calculated as the ratio of the value of current assets to the value of current liabilities 6 The autonomy ratio is calculated as the ratio of the amount of equity capital to the value of the balance sheet currency Duration of the operating cycle - Economic risk assessment based on financial ratios
Ktl 1.597 0.4 1.5 1.0-1.5<1,0 1 0.4 4 Коэффициент автономии Ксс СК А 0.525 0,2 0,4 0,25-0,4 <0,25 1 0.2 5. Рентабельность продаж - Analysis of financial condition over time
У21 0.586 0.537 0.776 0.732 0.979 0.393 Coefficient of autonomy of sources of formation of reserves and costs У22 0.246 0.285 0.509 0.547 0.976 0.73 Coefficient - Optimization of the balance sheet structure as a factor in increasing the financial stability of the organization
Such indicators include the current liquidity ratio, the autonomy ratio, the ratio of provision with own working capital, the capital structure ratio, the financial dependence ratio, Let's build a system of restrictions - Working capital and financial condition of enterprises
Vinci Autonomy coefficient Ka P3 WB 5 where WB is the balance sheet currency Minimum coefficient value 0.5 - Features of the application of comparative economic analysis methods when assessing the financial condition of an organization
Krsi ≥0.7 0.47 0.89 0.43 0.7 0.53 0.46 0.82 Autonomy coefficient Kyu ≥0.7 0.92 0.18 0.65 0.82 0.56 0, 57 0.9 Maneuverability coefficient Kman ≥0.5
Autonomy coefficient, also called coefficient. financial independence, determines the ratio of equity capital to the total capital of the organization. In other words, this coefficient. shows how independent the enterprise is from attracting capital from third-party sources of financing. The higher its value, the more stable the organization’s position and the less dependent it is on creditors.
Formula for calculating the autonomy coefficient
Coeff. autonomy is calculated as follows:
Ka = Equity / Assets (formula 1)
Own funds = Liabilities – Borrowed capital.
Borrowed capital, in turn, consists of short-term and long-term liabilities.
When directly calculating this coefficient. according to the balance sheet (form No. 1), the formula will look like this:
Ka=p.1300/p.1700 (formula 2),
where line 1300 reflects the sum of all the organization’s own sources of funds (authorized capital, reserve and additional capital, retained earnings),
and line 1700 – the sum of all liabilities (capitals and reserves, short-term and long-term liabilities of the organization).
Coeff. auto – one of the main indicators used to analyze the financial stability of an organization. The purpose of the analysis is to assess the solvency of the enterprise, its efficiency and financial stability.
For this analysis, 2 modifications of the coefficient are used. autonomy. They are completely equivalent to each other and the choice of one or the other depends only on the preferences of the analyst.
One of the options has already been discussed above (see the paragraph “formula for calculating the coefficient of auto”).
And the second option looks like this:
Ka = Own capital / Balance sheet currency (formula 3)
The analytical note must indicate which calculation option is used. This is necessary in order to correctly assess the absolute value of the calculated indicator. After all, for formula 1 the minimum acceptable indicator is 0.5. And in the case of calculating the coefficient. auto according to formula 3, this value will be equal to 1.
A decrease in the indicator signals an increase in risk and a decrease in the financial stability of the enterprise. In addition, as the share of liabilities increases, not only the risk of non-repayment increases, but also interest expenses.
The autonomy ratio is of great importance for lenders. The higher this indicator, the lower the risk of losing their invested funds.
Let's consider autonomy coefficient(its other name is the coefficient of financial independence), which is part of the group of coefficients of financial stability of an enterprise. As you probably remember, there are four groups of financial ratios: liquidity, profitability, business activity and financial stability. This coefficient belongs to the last group. It is immediately necessary to clarify the difference between the groups of liquidity and financial stability, since they are often confused. The key difference lies in the different assessment of the solvency of the enterprise, so the coefficients from the liquidity group assess the short-term solvency, and the coefficients from the financial stability group assess the long-term solvency of the enterprise.
Let's consider the coefficient of autonomy (financial independence) according to the following scheme: first we'll talk about its economic meaning, then we'll give a calculation formula, then we'll look at an example for the Russian enterprise OJSC Severstal and don't forget to talk about the standard values.
Autonomy coefficient(financial independence). Economic sense
Autonomy coefficient (analogue: financial independence) - this shows the degree of independence of the enterprise from creditors. The ratio shows the ratio of equity to total assets, thereby showing the share of equity in the total structure of assets (which includes both equity and borrowed funds). If the autonomy coefficient has low values, this indicates that the enterprise is financially unstable (depending on creditors).
Where is the autonomy coefficient used?
The coefficient of autonomy (financial independence) is used in the analysis of the financial condition of an enterprise by arbitration managers in accordance with the Decree of the Government of the Russian Federation of June 25, 2003 No. 367 “On approval of the rules for conducting financial analysis by arbitration managers.”
Thus, this coefficient is used by financial analysts for their own diagnostics of their enterprise for financial stability, as well as by arbitration managers.
Synonyms for autonomy coefficient
Let us list the synonyms for the autonomy coefficient used by other authors.
Financial independence,
Equity concentration ratio,
Ownership ratio
Independence coefficient,
Equity to Total Assets,
EQ/TA.
In fact, all the names listed above are one autonomy coefficient, but often in the literature it is called differently.
Autonomy coefficient(financial independence). Calculation formula for balance sheet and IFRS
Let's move on to consider the formula for calculating the autonomy coefficient, which will have the following form:
Autonomy (financial independence) coefficient = Equity/Assets = line 1300/line 1600
Line 1300 – the sum of all own funds,
Line 1600 – the sum of all assets.
According to the old balance sheet (before 2011), the autonomy coefficient was determined based on the formula:
Autonomy ratio = p.490/p.700
In foreign literature, the autonomy coefficient will have the following form:
ETA=EC/T.A.
EC ( Equity Capital) – equity capital of the enterprise;
TA ( Total Assets) – the amount of assets.
In the world practice of financial analysis, it is used financial dependency ratio(Debt ratio), which is the opposite in meaning to the coefficient of autonomy (financial independence). The coefficient of autonomy (financial independence) and the coefficient of financial dependence are similar, since in both cases equity and borrowed capital are used.
The formula for calculating the financial dependence ratio is as follows:
Financial dependency ratio (Debtratio) = Liabilities/Assets
According to Order of the Ministry of Regional Development of the Russian Federation dated April 17, 2010 No. 173 (clause 8.2.1.2), the financial dependence ratio had the following calculation formula according to the old RAS:
Financial dependence ratio = (line 590+ line 690 – line 630 – line 640- line 650) / (line 700)
According to the new form of the balance sheet, the formula takes the following form:
Financial dependence ratio = (line 1400 + line 1500 - line 1530 - line 1540) / line 1700
Public accounting statements (Balance Sheet and Profit and Loss Statement) are sufficient to calculate this ratio.
Another financial ratio similar to the autonomy ratio is financial leverage ratio(Debt to equity ratio). This indicator is calculated using the following formula:
Financial leverage ratio = Liabilities/Equity
This ratio, like the autonomy ratio and the financial dependence ratio, shows the ratio between equity and borrowed funds. The recommended and optimal value for Russian reality is 1.
Financial autonomy ratio. Calculation example for OJSC Severstal
To calculate the autonomy coefficient, we need the enterprise's balance sheet. I recommend taking financial data from the InvestFunds website. Let's take the balance sheet for 4 reporting periods: the 3rd and 4th quarters of 2013 and the first two quarters of 2014. The picture with the imported balance sheet of OJSC Severstal is located below. Let me clarify that the reporting was provided according to RAS (Russian accounting system).
Calculation of the autonomy coefficient for OJSC Severstal
Autonomy coefficient 2013-3 = 187646670/396107499 = 0.47
Autonomy coefficient 2013-4 = 191002492/399926531 = 0.47
Autonomy coefficient 2014-1 = 181977490/391313809 = 0.46
Autonomy coefficient 2014-2 = 192818659/387994606 = 0.5
The autonomy coefficient for OJSC Severstal did not change much throughout all four analyzed periods. We can conclude that the financial condition of the enterprise is stable.
Autonomy (financial independence) coefficient. Standard
In Russia, the autonomy coefficient has a normative value of >0.5. The optimal value is in the range from 0.6-0.7. For example, in foreign sources the standard value for this coefficient in the USA and Europe is 0.5, in South Korea - 0.3. The autonomy coefficient should be considered in relation to enterprises in the same industry. This will allow you to more accurately determine your place in the overall system of similar enterprises. Since the normative values proposed above are only general recommendations.
Resume
Let me summarize the analysis of the autonomy coefficient (financial independence). It is an important coefficient that reflects the financial stability of the enterprise and is required for calculation and further analysis. It is used, as a rule, by financial analysts and arbitration managers. Shows the independence of the enterprise from creditors (external borrowed funds).
Before investing their savings in a particular project, any investor will want to first analyze the main economic indicators both for the reporting period and for the planned one. These certainly include the autonomy coefficient, which is often called the financial stability coefficient (independence, ownership, leverage, equity ratio). Any audit of economic activity cannot do without it, so it has long been rightfully considered a classic indicator that must be taken into account when drawing up any business plan.
What does the autonomy coefficient show?
This indicator allows you to get a clear picture of how much a company depends on creditors. The lower the autonomy coefficient, the lower the financial stability, and vice versa. Of course, it is possible to do without a loan in business, but this happens quite rarely. After all, when starting and expanding activities or during long-term capital re-equipment of production facilities, a fairly large amount of funds is often required, which not everyone has available. From this point of view, the lack of borrowed funds can lead to a loss of competitiveness or technological lag behind market leaders. Therefore, if the autonomy coefficient shows 0, this does not mean that the company is doing well. What then should we focus on? In order to assess the financial autonomy of a company, it is customary to compare the calculated values with domestic and foreign standards. Our economists believe that the optimal value lies in the range of 0.6-0.7. And in world practice the interval is 0.3-0.4. This difference can be explained by the fact that in the West, reputation and timely fulfillment of one’s obligations to creditors are of great importance in business.
How is the financial autonomy ratio calculated?
The formula for calculating this indicator is extremely simple: all you need to do is find the ratio of equity capital to the total assets of the company:
Ka = Sk/Ca, where
SK - total capital, the source of which is the sum of lines 490, 640, 650 of the balance sheet;
Sa - total assets, which are indicated in line 700 of Form 1 (balance sheet).
If the resulting value is less than 0.5, this indicates that the company is experiencing certain difficulties with working capital, and for the investor this indicates the risk of insolvency, and therefore a possible loss of investment.
Nuances
It should be borne in mind that depending on the industry and location of the enterprise, the autonomy coefficient may vary, so it should always be considered in dynamics or in comparison with a similar indicator of competing firms. The higher the capital intensity of production, the more the enterprise depends on long-term sources of funds, and therefore, the share of its own capital should be quite high. And vice versa, if the share of raw materials and materials in the cost is high, then in this case the autonomy coefficient may well be lower than the standard one.
