Risks of financing in a theory and in practice

Deciding a question about bringing in of facilities, CFOs it is necessary to take into account, to what the bulk of permanent charges of company is related and a situation is which with percent payments. Otherwise there is a risk in earnest to undermine financial stability and business profitability.

The questions of structure of financing are important for any leader with a right for a decision-making about bringing in credits or investments. They and one of most difficult. To utilize a loan capital or limited to own? If to utilize, will a bank or private investor be a creditor? If is it a private investor, what terms to offer to him? Et cetera.

A situation is aggravated that in the case of bringing in of money a company must be "shown a person". This business is extremely ambiguous. If a picture will appear too good, logically will require more low percent (a "bonus diminishes for a risk") from an investor, and it can frighten off him. If a picture will be "not very much", to the discussion of terms business can quite not reach.

In obedience to a theory, the risk of business can be appraised from point of asset (production risk) or passive voice (financial risk). In number a risk is measured the so-called lever, or leveridzhem. It is an index which takes into account a sensitiveness arrived to the vibrations of profit (production levered) or percent payments (financial leverage). A theory does not give a single index which would reflect both types of risk combined. However considered it is, that a high financial risk must not combine with a high production. That does stand after this assertion and as far as it is attainable?

Business types: governed exceptions

Simpler than all to estimate a production lever on the stake of permanent charges in the lump sum of charges of enterprise. What it anymore, the higher production risk: you want - does not want, covering permanent charges is necessary. Certainly, a profit yield can test so strong seasonal vibrations, that in the period of slump profits appear below even permanent charges. In this case it is necessary to form the proper fund which would parry such unfavorable influence. This requirement is usually executed those firms which got used to the regular slumps of sales and never - those, who this surprise overtook first.

What companies is the high level of permanent charges characteristic for? Simpler than all it to define, leaning against classification of enterprises on the criterion of major factor of production. Then easily to select the followings types of business:

Fondoemkiy. For him a basic factor are under revolution assets: earth, buildings and buildings, equipment. It is large metallurgical and shipbuilding combines, agricultural production, transport, building. A basic stake of charges of enterprises of these industries is on funds: depreciation plus charges on maintenance of their technical state. And almost all of these charges carry permanent character.

Raw material intensive. This business depends on the bought in raw material, materials and stuff. The classics of genre are trade, both wholesale and retail. A basic stake of charges in these industries is on raw material, materials and stuff. Therefore a financial result appears sensible to the exceptionally weak vibrations of auction mark-up.

So, for the director of wholesale firm, trading in building materials, there was a question: why in summer for them realized products far anymore, and an income remains unchanging, even diminishes slightly? An answer appeared simple. The stake of large orders on which it is accepted to give discounts increases in a summer period. As a result of their grant the stake of direct charges was increased from usual 77,5 to 80,5 percents and "ate" 60 percents arrived.

The reverse of sensitiveness of income is possibility to cut down expenses on purchase in periods of slump of sales. So a production risk for this sphere is not too frightful.

Labour intensive. A basic factor of this business is a personnel, and main charges are a wages. Considerable part of sphere of services belongs here: consulting, education, a health protection is partial. Here a production risk is conditioned foremost payment of wages. Guidance of company in theory can tie it to the results of activity, however risks to lose employees. Level of permanent charges here below, than in fund volumetric industries, and there is more possibility for a manoeuvre: it is possible and to shorten the state, and in vacation to send, and to reduce salaries. However high enough a production risk is however.

There are also industries, the enterprises of which do not either have the expressed type or can behave to the different types depending on circumstances. Good illustration is a public food consumption. In the inexpensive cafe of stake of charges on funds, raw material and pay-envelope can be approximately equal. Thus a fashionable restaurant almost for certain will appear fund volumetric, and factory dining-room - by a raw material intensive enterprise.

Rules of credit policy

A key question is here become by ability of company to provide such clean money stream (CHDP) on basic activity, which would guarantee timely redemption of credit and percents on him. But previous experience or prognosis can show that receipts will be uneven. In this case a company is under an obligation beforehand to form a "buffer fund" in size of bank payments for a few months. As a last resort - to secure the consent of bank to the grant of bank vacations . It is otherwise needed to renounce from business.

Thus, by a basic document at making a decision about the large investing of facilities there is the supposed not report on gain and losses, but prognosis of cash flow. And here on itself pays attention one small, on the face of it, detail about which quite often forget on the stage of planning. It is a credit policy.

For any economist, making business plans, it is known that is rare what business appears more successful, than it appeared in projects. And, problems with a clean money stream can appear for any participant of market. Combined into larger units their reasons can be divided into two groups:

• problems of realization, when a profit yield is not present, because products do not find a buyer;
• problems of credit policy, when we can not get payment for the shipped commodity or done service.

Collection of debts is very important, but unpleasant work, therefore the leaders of companies frequently involuntarily ignore it. In most cases, when problems are with a money stream, managers send the efforts to growth of realization of products or services. And a very opposite result is arrived at: what a more sale is in the conditions of weak collection, the worse clean money stream. Creditors, however, require it - business is burned completely. The leaders of the Russian enterprises understood already, that an account receivable did not belong to the number problems with which it is necessary to live, is necessary to be continuously decided. But to decide it it is impossible once for all, as debtors appear over and over.

In conclusion of the article will formulate the rules of combination of production and financial risk with a level arrived by quality of credit policy (see of table. 2). These information is reflected, accordingly, in the indexes of balance of company, report on gains and losses and budget of cash flow. Certainly, their implementation does not guarantee success, but a failure to observe is a reliable signal of unfortunate