What Is a Gearing Ratio?

Assets and liabilities

Analysis of profit and net cash flow

The increase in the company's asset-liability ratio depends first on whether the profits realized by the company in the current year have increased compared with the same period of the previous year, and whether the growth rate of profits is greater than the increase in the asset-liability ratio. If it is greater, it brings positive benefits to the enterprise, and this positive benefit makes the enterprise

Gearing ratio =

Determine whether the asset-liability ratio is reasonable

To determine whether the asset-liability ratio is reasonable, it first depends on who you stand. The indicator of asset-liability ratio reflects

The balance sheet is one of the three major financial statements of an enterprise's financial report. Use appropriate methods and indicators to read and analyze the company's balance sheet in order to correctly evaluate the company's financial status and solvency. For a rational or potential It is extremely important for investors. Before reading and analyzing the balance sheet, you should know the following aspects:

First, understand the nature of the balance sheet and what aspects the balance sheet can reveal to the public. Specifically, assets and liabilities are static financial statements that reflect the financial status of an enterprise at a certain date (that is, at a certain point in time). In addition to directly reflecting the economic resources (assets) held or owned by the enterprise at the reporting date In addition to the debts and shareholders' rights and interests in the enterprise, they can also indirectly reflect whether the financial structure of the enterprise is sound and reasonable and the level of solvency by processing relevant information in the statements.

Second, understand some background information related to the enterprise, such as the nature of the enterprise, its business scope, main products, fiscal and taxation systems and policies and changes, and some major events that occurred during the year. In addition, we must understand the macroeconomic policies of some countries, such as changes in industrial policies, finance, accounting systems, and taxation.

Third, understand and master some basic analysis methods. When conducting basic analysis of financial statements, the most commonly used and most convenient and effective methods are nothing more than structural analysis, trend analysis and ratio analysis. The difficulty is to be able to skillfully and comprehensively use these methods to analyze the seemingly isolated and single information of some corporate financial statements. The hardest thing to grasp is what criteria to choose to evaluate a CPA or information that you have obtained or processed yourself.

Faced with a large amount of data in the balance sheet, you may feel a sense of surprise, do not know where to start. According to my experience and experience in actual work, I think that we can proceed from the following aspects:

First, take a look at the main contents of the balance sheet. From this, you will have a preliminary understanding of the total assets, liabilities, and shareholders' equity of the enterprise, as well as the composition and changes of its internal items. Because the total assets of an enterprise reflect the business scale of the enterprise to a certain extent, and its increase or decrease has a great relationship with the changes of corporate liabilities and shareholders 'equity. When the growth rate of corporate shareholders' equity is higher than the growth of total assets, This shows that the financial strength of the company has improved relatively; on the contrary, it shows that the main reason for the expansion of the company's scale is from the large-scale rise in liabilities, which in turn indicates that the financial strength of the company is relatively reduced and the security of debt repayment is also decreasing.

Further analysis of some important items on the balance sheet, especially those with large changes in the beginning and end of the period, or those with large red letters, such as current assets, current liabilities, fixed assets, costly or interest-bearing liabilities (such as short-term Bank loans, long-term bank loans, bills payable, etc.), accounts receivable, monetary funds, and specific items in shareholders' equity.

For example, an enterprise's excessive accounts receivable accounts for too high a proportion of total assets, indicating that the company's funds are being occupied more seriously, and its growth rate is too fast, which indicates that the company may be due to weak market competitiveness or economic Environmental impacts have reduced the quality of corporate settlements. In addition, the age of accounts receivable in the notes to the statement should also be analyzed. The longer the age of accounts receivable, the less likely it is to recover them. For another example, the company has a lot of liabilities at the beginning and the end of the year, which indicates that the company's interest burden per share is heavier. Stronger, managers have a stronger sense of risk and have greater courage.

For another example, in the shareholders' equity of the enterprise, if the statutory capital reserve fund greatly exceeds the total share capital of the enterprise, this indicates that the enterprise will have a good dividend distribution policy. However, at the same time, if the enterprise does not have sufficient monetary funds to guarantee, it is expected that the enterprise will choose a distribution scheme of increasing capital by issuing rights shares instead of a distribution scheme of issuing cash dividends. In addition, when analyzing and evaluating some projects, it is necessary to combine the characteristics of the industry. As far as real estate companies are concerned, if the company has more inventory, it means that there may be more commercial housing bases and projects under development. Once these projects are completed, it will bring a high economy to the company. benefit.

Secondly, some basic financial indicators are calculated. The data sources for calculating financial indicators are mainly the following: directly obtained from the balance sheet, such as the net asset ratio; directly from the profit and profit distribution statements, such as sales profit At the same time, it is derived from the balance sheet profit and profit distribution statement, such as the account receivable turnover rate; part of it is derived from the company's book records, such as the ability to pay interest. Due to space limitations, I mainly introduce the calculation and significance of several major financial indicators in the first case.

1. The indicators reflecting whether the financial structure of an enterprise is reasonable are:

(1) Net assets ratio = total shareholders' equity / total assets

This indicator is mainly used to reflect the financial strength and debt repayment security of an enterprise. Its reciprocal is the debt ratio. The level of net assets ratio is directly proportional to the strength of the company's funds, but if the ratio is too high, it means that the financial structure of the company is not reasonable. The indicator should generally be around 50%, but for some very large enterprises, the reference standard for the indicator should be reduced.

(2) Ratio of net fixed assets value = net fixed assets value / original value of fixed assets

This indicator reflects the old and new level and production capacity of the enterprise's fixed assets. Generally, this indicator should exceed 75%. This indicator is of great significance to the evaluation of the production capacity of industrial enterprises.

(3) Capitalization ratio = long-term debt / (long-term debt + shareholders' equity)

This indicator is mainly used to reflect the proportion of long-term working capital that an enterprise needs to repay and interest-bearing long-term liabilities. Therefore, this indicator should not be too high, and should generally be below 20%.

2. The indicators that reflect the security and ability of a company to repay its debts are:

(1) Current ratio = current assets / current liabilities

This indicator is mainly used to reflect the ability of a company to repay its debt. Generally speaking, this indicator should be maintained at 2: 1. Excessive current ratio is a kind of information that reflects the unreasonable financial structure of the enterprise. It may be:

The management of some links of the enterprise is relatively weak, which leads to a higher level of the company in terms of accounts receivable or inventory;

Enterprises may be reluctant to expand the scale of debt management because of their conservative management consciousness;

Joint-stock enterprises have not yet fully put into operation after raising funds by issuing stocks, increasing capital and alloting shares, or borrowing long-term loans and bonds; etc .; But in general, the excessively high current ratio mainly reflects that the funds of the enterprise are not fully utilized, and the ratio is too low, which indicates that the security of corporate debt repayment is weak.

(2) Quick ratio = (current assets-inventory-prepaid expenses-pending expenses) / current liabilities

Because the company's current assets include a part of the inventory with low liquidity (liquidity) and unpaid or prepaid expenses, in order to further reflect the company's ability to repay short-term debt, usually people use this ratio to test, so the ratio Also called "acid test". Under normal circumstances, the ratio should be 1: 1, but in actual work, the evaluation criteria of the ratio (including the current ratio) must also be determined based on industry characteristics, and cannot be generalized.

3. The indicators reflecting the shareholders' equity in the company's net assets are:

Net assets per share = total shareholder equity / total share capital

This indicator indicates the value of each share held by shareholders in the enterprise, that is, the value of the net assets represented. This indicator can be used to judge whether the stock market price is reasonable or not. Generally speaking, the higher the indicator, the higher the value represented by each stock, but this should be distinguished from the business performance of the company, because the higher proportion of net assets per share may be due to the company's Due to higher premiums.

Fourth, based on the above work, a comprehensive evaluation is made of the financial structure and solvency of the enterprise. It is worth noting that because these indicators are single and one-sided, you need to be able to analyze and evaluate with a comprehensive and connected perspective, because the level of indicators reflecting the financial structure of an enterprise often conflicts with the company's ability to pay debts . If a company's net asset ratio is high, it means that its debt repayment period is safe, but at the same time it reflects that its financial structure is not reasonable. Depending on your purpose, the evaluation of this information will be different. For example, as a long-term investor, what you care about is whether the financial structure of the company is sound and reasonable. On the contrary, if you appear as a creditor, he will be very concerned. The company's debt repayment ability.

Finally, it must be noted that because the balance sheet only reflects financial information of a certain aspect of the enterprise, you must have a comprehensive understanding of the enterprise, and you must also analyze other content in the financial report to obtain the correct Conclusion.

As of the end of November 2014, the asset-liability ratio of central enterprises was 63.3%, a year-on-year decrease of 0.2 percentage points. The average asset-liability ratio has fallen for the first time since 2008.

In the past 2014, central enterprises actively responded to the severe and complex situation, especially the prominent contradictions of increasing downward pressure on the economy, and achieved good operating results: From January to November, the total profits of central enterprises reached 1.28 trillion yuan, an increase of 5.2% year-on-year The economic benefits reached a new high, the increase rate was the highest level in three years. ^[3]