Indicators ebit and ebitda: features of calculation according to IFRS reporting. Optimization of the capital structure of an enterprise (on the example of JSC "Silvenit") The ebit volatility method allows you to determine the acceptable level

If the firm can be sure of making profits, then there is likely to be net tax savings due to borrowing. But for firms that have little chance of making enough profits to benefit from corporate income tax protection, loans offer little if any net tax benefit.

R. Bresci, S. Myers

On fig. 5.4 shows the approaches most commonly used in modern financial analytics to justify the amount of borrowed capital acceptable to the company (constantly used paid borrowed sources of financing). The optimal amount of debt is the one that maximizes the objective function. From the point of view of financial analytics and management, the following financial functions are important:

■ maximizing the market value of equity or total invested capital;

■ maximization of stakeholder value (ie the benefits of all owners of capital, both financial and non-financial);

■ maximizing the owners' profits (indicator EPS) while maintaining a certain level of financial stability;

■ minimizing risks or maintaining the risk of carrying out activities at a certain fixed level.

Depending on the choice of the objective function of financial management, employees of the financial and economic service of the company or financial consultants build a rationale for the amount of debt financing that is acceptable for the company.

Rice. 5.4.

The WACC and AGC models are built on the premise of maximizing the company's market value. AT WACC models it is assumed that the point of maximum value is reached while minimizing the cost of capital. This allows us to build an algorithm for considering scenarios of different values of financial leverage. AT AGC models attention is paid to the influence of financial leverage on the amount of tax benefits and non-operating costs (direct and indirect) of working on borrowed capital. Models for balancing the rewards of risk and return focus on assessing risk and building debt sustainability in order to remain solvent.

The main barrier to working on borrowed capital is the volatility of operating income and high operating risk. In practice, within the framework of this area of financial modeling, two methods can be implemented: the imposition of leverage and volatility. EBIT. The general idea of the methods is that the more significant the operational risk factors, the more unstable (in professional financial language - volatile) the forecast values of operating profit (EBITDA, EBIT) and the less, respectively, the company can take on additional financial risk and the less financial leverage should be.

The idea embedded in leverage method, - the presence of an acceptable level of total risk, which is the result of the combined influence (superposition) of factors of operational and financial risks. Quantitatively, the cumulative risk is expressed through the greater instability of the expected value of net income compared to the expected volatility of revenue. The reason for the greater instability is the presence of fixed costs in the company's cost structure. Quantitatively, leverage values are calculated using the elasticity formula.

Consider the method of imposing leverage on an example.

The Zharkaya Krov company, a manufacturer of machine oils, annually sells about 90 thousand tons. At this level of sales, operating profit (EBIT) averages $50 million and the estimated effect of the associated leverage on reported sales is 2.1 (thus, net income elasticity to revenue change is 2.1).

The owners of the company consider the value of the effect of the conjugate lever at the level of 2.1 as optimal, since with such fluctuations in net profit, the company will be able to ensure payments on preferred shares, continue investment and social programs. For example, if the acceptable volatility (instability, volatility) of net profit is estimated by the owners at 25%, and marketers predict variability in demand for products and, accordingly, revenue at the level of 52% of the achieved, then the effect of the conjugated leverage for the company is estimated at 2.1 (52/ 25). A higher value of the associated leverage will mean the potential for insufficient profits for further operation.

The company's borrowed capital consists of $24 million bonded loan (balance sheet value) with a 12% coupon rate (for simplicity, we assume that the loan is perpetual). The management is considering the possibility of setting up a new production line to replace the worn out old one. This replacement will not lead to an increase in output or a change in quality, but the cost structure will change, which will be reflected in the effect of operating leverage.

To answer the question of whether a company can increase its debt level and finance an investment decision with borrowed funds, it is necessary to understand how the cost structure will change and whether the company's operational risk will increase. In the leverage method, operational risk is diagnosed by the coefficient of elasticity of operating profit, i.e. by the effect of operating leverage (EOR).

The effect of operating leverage at a point (2 sales volumes can be calculated using the formula

where R - product price; V - specific variable costs; fixed costs.

This formula shows the percentage change in operating profit for a 1% change in revenue. EOR can also be calculated using the formula

Operating Leverage Effect = Marginal Income / Operating Profit = (Operating Profit + Fixed Costs) / Operating Profit.

Let's assume that the new value of the operating leverage will be equal to 1.9. The change in the leverage effect is associated with a change in the cost structure. In the absence of fixed costs, the effect of operating leverage is 1 (a 1% change in sales volume and revenue at constant prices leads to a 1% change in operating profit). The larger the proportion of fixed costs, the higher the ESM value will be. Thus, with the growth of fixed costs, operating profit becomes more sensitive to operational risk factors.

Prior to the adoption of the project, annual payments on borrowed capital amounted to 12% of $24 million, i.e. $2.88 million

For the company under consideration, after the adoption of the project, the effect of operating leverage will be 1.9. Since 1.9 = Marginal Income / /50= 1.9, the marginal income (the difference between revenue and variable costs) is $95 million.

In order for the effect of conjugated leverage (ESR) to remain at the level of 2.1, the following ratio must be satisfied: 95 / (Operating profit - Financial payments) = 2.1 = ESR.

Recall that the ESR shows how many percent net profit will change when the volume of production (sales income) changes by 1%. The following formulas can be used to calculate ESR:

Conjugate leverage effect = Marginal income / (Revenue - Costs (operating and financial)) = (PQ vQ)/(PQ - f)Q - F - I) = = (EBIT + F)/(EBIT- /);

Conjugate Leverage Effect = (Operating Leverage Effect)(Financial Leverage Effect),

where the effect of financial leverage (EFF) is equal to the percentage change in net income per 1% change in operating income, i.e. shows how sensitive net income is to operating income.

The ESR ratio is met with annual financial payments of $4.76 million, which exceeds the financial burden on profits that existed before the project was accepted. Thus, the project, which provides a reduction in operating leverage, allows increasing annual financial outflows by $1.88 million. While maintaining the borrowing conditions (and ignoring agency costs, bankruptcy costs), the company's borrowed capital can be increased by $15.66 million (1 .88/0.12).

The second of the possible approaches to justify the size of the debt burden based on the analysis of operational risk factors (those that lead to the instability of the expected value of operating profit) is sometimes called the method of volatility (variability) of operating profit.

EBIT (operating profit) volatility method allows you to determine the acceptable level of debt in the company's capital structure based on the acceptable probability of financial difficulties (bankruptcy), which is set based on the wishes of the owners. The method does not require the company's shares to be listed on the market. The required information is an assessment of the volatility of operating profit based on past data (statistical base for a company or industry) or according to experts' estimates, taking into account the analysis of changes in the market in the future. It is assumed that the probability of bankruptcy and financial difficulties depends solely on the volatility of operating profit. The more unstable the company's profit, the higher the likelihood of being unable to pay off debts and falling into a situation of insolvency.

For a given level of bankruptcy probability, the target level of the company's financial leverage is determined. If the level of financial leverage is greater than the maximum allowable, then recommendations are given to reduce it. If the actual level of financial leverage is less than acceptable, then options for increasing it are considered.

Financial difficulties may arise when EBIT< DR at the considered time points (EVIT- value of operating profit, OR - debt and interest payable in that period).

Probability of Financial Hardship for a Given Level of Debt

Quantitatively, the probability is calculated using the Student's distribution with (and - 1) degrees of freedom, taking into account the influence of the following parameters:

Here EBIT- average profit, EVYY=1.EVYY1 / and; DP- indicator of debt burden on profit; y2 - profit variance, y2 \u003d C £ W7 / - EVTG /(and-1); P- the number of periods (years) for which profit values are known.

1. An acceptable probability of financial difficulties is set.

FRIT-DP

2. The value of the indicator is calculated as the value of the Student's inverse distribution function with (P - 1) degrees of freedom from the acceptable probability of financial difficulties. The volatility of operating profit is usually estimated from the financial statements for a number of recent years of the company's operation.
3. The indicator of the debt burden on profit is determined (DP) based on the found value EVGG-RR Acceptable amounts of debt and financial leverage are calculated.

An important element of the analysis is the table of correspondence between the probability of bankruptcy and the credit rating (Table 5.3).

Table 5.3.

We will show the application of the volatility method EV1Tna numerical example.

Based on the financial statements for previous years, the profit of a regional candy manufacturer took the values shown in Table. 5.4.

Table 5.4. Profit dynamics of a regional candy producer in 2002-2004, million rubles

Balance sheet estimate of own capital - 1890 million rubles. The method allows to form recommendations on the allowable amount of borrowed capital.

If the probability of non-payment is set at 7.3% (which corresponds to the BV+ credit rating), then the method allows:

1) calculate (EEBIT-DP) /SD= 2,321355;
2) determine the amount of acceptable annual interest payments or the critical level of annual payments (break-even debt payment) equal to 96.87062;
3) in accordance with the credit rating (according to the level of probability of financial difficulties), evaluate the corporate default spread (yield spread) to the risk-free yield. Credit rating BB+ corresponds to a spread of 2%, therefore, with a risk-free return of 8.5%, the acceptable value of the required return on borrowed capital will be 10.5%;
4) modeling work on borrowed capital for an infinite time period, calculate the maximum allowable amount of debt for the company using the perpetual annuity formula:

\u003d / 0L05 \u003d 922.577. Based on the balance sheet estimate of equity capital of 1890 million rubles. financial leverage will be 49% as a ratio of debt to equity and 32.8% as a share of debt capital in the total capital of the company. Let's show how the recommendation regarding financial leverage will change with other acceptable values of the probability of financial difficulties (Table 5.5).

Table 5.5.

Consider another example of calculating the optimal amount of debt using the operating profit volatility method. In table. 5.6 shows how the operating profit changed over the years for the company "Children's age" - a manufacturer of children's clothing.

Table 5.6. Dynamics of profit of the company LLC "Children's age"

	Operating income (EBIT), thousand dollars	Change in operating profit by years, %



















Mean
Volatility (standard deviation)

In 2007 the value EBITDA is 4,900 thousand dollars. The company plans to work on borrowed capital, and is going to repay 10% of borrowed funds annually. Thus, the amount of annual payments includes both interest on borrowed funds (the interest rate is 11%) and the repayment of part of the "loan body". The owners set an acceptable level of risk (as the probability of default on repayment of obligations) at 10%.

The standard deviation of earnings is 26.21%. The ^-statistics index corresponding to the given risk level is 1.645.

The critical level of payments on borrowed capital for the company for 2007 can be found from the following ratio:

Annual critical payments for the company = EBITDA - EBITDA (Indicator of ^-statistics) SBh:nn= (4900 - 4900 x 1.645 - 0.2621) = 4900 - 2112.65 = = 2787.3.

The admissible value of borrowed capital (optimal debt level) will be: 2787.3 / (0.11 + 0.1) = 13272.86.

Paid interest for the case of share repurchase without increasing debt;

The total number of ordinary shares outstanding after the share repurchase due to an increase in debt;

The total number of ordinary shares outstanding after share repurchases without increasing debt.

Let's compare the current value of operating profit (2011) and the value at the point of indifference:

EBIT current = 276,533,000 rubles, EBIT* = 282,940,124.

The value at the point of indifference exceeds the current value of operating profit. Under the EBIT-EPS method, the company should have rejected the option of financing the share buyback with debt capital, as this policy does not maximize earnings per share.

The optimal financial leverage adopted in the framework of the considered simulation minimizes the value of WACC. The value of the company is maximized while minimizing the cost of capital. The WACC value is calculated as follows:

where is the cost of borrowed capital;

The cost of equity;

Income tax rate;

The amount of debt financing;

Market value of equity;

The amount of capital.

The amount of equity is equal to the product of the market value of one share by the number of shares in circulation. At the same time, the equity capital of the company consists only of ordinary shares. Borrowed capital for each case was found through known values of financial leverage and equity capital. Interest payable was calculated as the product of debt financing and the cost of borrowed capital. The unlevered beta was determined earlier for companies producing medical products, the levered beta was found using the previously used formula (6).

According to the calculation results, it can be seen that, according to the considered method, the optimal capital structure is achieved when the financial leverage is 30%. The current value of the financial leverage of the company "DIOD" is 42.83%, so the company should reduce the share of borrowed capital.

The operating profit volatility method allows you to determine the acceptable level of debt in the company's capital structure, based on the likelihood of financial difficulties (bankruptcy). It is assumed that for more unstable company profits, the probability of being unable to pay off debts and falling into a situation of insolvency is higher. For a given level of bankruptcy probability, the target level of the company's financial leverage is determined. If the level of financial leverage is greater than the maximum allowable, then recommendations are given to reduce it. If the actual level of financial leverage is less than acceptable, then options for increasing it are considered.

Table 10. Initial data of JSC "DIOD"

Table 11 Correlation between Bankruptcy Probability and Credit Rating

	Default probability, %

	Default spread, %

All the necessary calculations for the company JSC "DIOD" using the method of operating profit volatility are presented in Table. thirteen.

Table 13. Estimation of the optimal capital structure of DIOD OJSC using the operating profit volatility method

Average EBIT, RUB
EBIT Standard Deviation

Default probability, % (Table 12)
Default spread, % (Table 13)
Confidence interval, %
t-statistic with 3 degrees of freedom for confidence. interval 85.4% ()
Amount of eligible annual interest payments (DP), rub.
Risk-free return (),%
Required yield on debt (),%
Maximum amount of debt, rub.
Current value of debt, rub.
Actual value of financial leverage, %
Maximum value of financial leverage, %

where - the average value of operating profit;

The amount of eligible annual interest payments;

Variance of operating profit;

T-statistic having Student's distribution with (n-1) degrees of freedom;

n is the number of years for which operating profit values are known.

The change in operating profit was analyzed over 4 years. Therefore, a t-statistic was found having a Student's distribution with 3 degrees of freedom for a confidence interval of 85.4%, which was calculated as (). The amount of acceptable annual interest payments or the critical level of annual payments was determined from formula (9):

The maximum allowable debt for the company was calculated using the perpetual annuity formula, while the required return on debt is equal to the sum of the risk-free return and the default spread:

Thus, according to the operating income volatility method, the company should reduce the amount of borrowed capital in cases where the credit rating is BB+ and BBB, since the current value of borrowed capital exceeds the maximum possible debt values. In all other options, the current value of the debt does not exceed the maximum allowable value, respectively, the company can increase borrowed capital.

The effect of financial leverage is to increase the company's return on equity (ROE) through the use of debt financing. But, on the other hand, an increase in borrowed capital leads to an increase in the risk of insolvency of the company. In this case, the manager must ensure that the profitability of the organization's activities exceeds the cost of capital. The problem of optimizing the effect of financial leverage is as follows:

where - the rate of return on investment capital, equal to the ratio of post-tax operating profit to the value of the company's capital;

Post-tax borrowing rate, which is equal to the product of the required return on borrowed capital and (1 - income tax rate);

The amount of borrowed capital of the company;

The amount of equity capital of the company.

The relationship between return on equity and operating return on invested capital is determined by the following formula:

Owners will benefit in the form of a higher rate of return if borrowed capital is raised at a rate no higher than the operating return on capital invested ().

Thus, when considering two alternatives, the option with the greater effect of financial leverage is selected. To analyze the optimal structure of OAO DIOD, using this method, it was also assumed that the company is considering two alternative options for changing the capital structure in 2012: buyback of the company's shares by increasing borrowed capital and buyback of shares without increasing debt. All necessary calculations are presented in Table. fourteen.

Table 14. Estimation of the optimal capital structure of JSC "DIOD" by the method of maximizing the return on equity

	Alternatives
	Buyback of shares by increasing debt	Buyback of shares without increasing debt
Increase in borrowed capital, rub.
Borrowed capital, rub.
Own capital, rub. (Table 9)
Capital, rub.
Operating profit, rub.
Tax rate, %
Post-tax operating profit, rub.
Return on investment capital (ROCE), %
Cost of borrowed capital, % (Table 8)
After-tax borrowing rate, %
Effect of financial leverage, %

Post-tax operating profit for share repurchases without increasing debt is equal to operating profit multiplied by (1-tax rate). For the option of repurchasing shares by increasing debt, there is a decrease in profit by the amount of interest on additionally attracted debt, which is equal to the product of additional borrowed capital and the after-tax borrowing rate.

Thus, the effect of financial leverage is much higher for the case of share repurchase without increasing debt, in this case, the optimal capital structure of DIOD OJSC is achieved. For the case of an increase in debt, the effect of financial leverage takes a negative value. Company "DIOD" should not have increased the amount of borrowed capital.

When calculating the optimal structure using the APV method, it is assumed that an increase in debt capital allows saving on the company's income tax while increasing the costs of financial instability compared to the value of a company without debt financing. According to this method, the value of the company is calculated as follows:

where - the value of the firm, taking into account financing decisions;

The value of the firm without debt;

Benefits from the effect of the tax shield, which is calculated as the product of the tax rate by the amount of additional borrowed capital;

Costs of financial instability of the company.

Increasing the amount of financial leverage will save on tax payments, and until these benefits exceed the costs of bankruptcy, the value of the entire company will increase.

To analyze the optimal capital structure of DIOD, several options for the value of financial leverage were considered, with each value corresponding to its own credit rating and the probability of bankruptcy . Accounting for the loss of solvency is implemented through the introduction of two estimates: the probability of financial difficulties and a quantitative assessment of the loss of value. In practical calculations, the assessment of the loss of value is introduced according to industry statistics of the decline in capitalization due to emerging financial difficulties. For companies with a high share of liquid tangible assets, there is a loss of value in the range of 10-20% of the original value. The assessment of the loss of value of DIOD JSC was taken at the level of 25%, since the company does not have a large amount of highly liquid tangible assets.

The value of own capital did not change, while the borrowed capital for each case was found through the known values of financial leverage and equity. The expected costs of bankruptcy were calculated as the product of debt capital, the probability of bankruptcy, and the estimated loss of company value. According to the results of Table. 18 we can say that the value of the company with the use of financial leverage is less than the value of the company without its use in almost all cases. The exceptions are cases where the financial leverage is 0% and 10%. When the leverage is greater than 40%, the company's leveraged value becomes negative, as the expected costs of financial instability far outweigh the tax shield.

3.3 Reasons for deviating from the optimal capital structure

Based on the results of the analysis of the capital structure of JSC "DIOD" using different methods, it can be concluded that the company should not have attracted additional borrowed capital in 2012, since the considered methods revealed a deterioration in the company's position with an increase in debt financing. It was found that the optimal capital structure of the company is achieved with a financial leverage of 30%, and the current value is 42.83%. The increase in the debt of JSC "DIOD" has led to the fact that the actual value of the financial leverage significantly deviates from the optimal value. The company should reduce the amount of borrowed capital to optimize the capital structure. This gap can be explained, including behavioral factors. Let's compare the average values of the variables for the sample studied in the second chapter of the work and the values of the variables for the company JSC "DIOD" (Table 15).

Table 15. Analysis of behavioral factors

	Sample mean values of variables	Values of variables for JSC "DIOD"

The share of shares owned by the head of his company,%
Risk taken by the manager, %
Financial risk index, shares
Leader's age, years

The share of shares owned by the head of JSC "DIOD" is much higher than the average value for the study sample. The head of the company can be considered irrational, since he does not diversify his investment portfolio and owns a fairly large block of shares in his companies. According to the manager's professional experience, it was revealed that he has been working in the DIOD organization since September 1994. For such a long period of time, the CEO is well aware of the company's activities and is confident in its further development. Thus, the head of the company is quite confident and optimistic, so he could attract additional borrowed capital, deviating from the optimal structure. In addition, the risk taken by the manager is relatively high and does not differ much from the sample average. The company's cost of equity, reaching almost 20%, can be considered quite high. The head of JSC "DIOD" takes a high risk, which indicates his self-confidence and optimism. The CEO expects that the risk he is taking will be justified and the company will be able to achieve high earnings in the future. All this may also indicate the manager's inclination to increase the company's debt burden. The age of the head turned out to be below the average value, so the head of JSC "DIOD" can be considered relatively young. According to the conclusions made in the work, younger managers often follow a risky company management strategy, they are more optimistic, and therefore attract a high proportion of borrowed funds. The financial risk index is low compared to the average value for the sample, so it does not greatly affect the deviation in the choice of the capital structure of the company "DIOD".

Thus, the analysis of behavioral factors showed that the head of the company "DIOD" may be characterized by behavioral deviations in rational behavior, this could affect the financial decisions that he made, in particular, the choice of the company's capital structure.

capital profit profitability financial

Conclusion

Existing approaches to the formation of the capital structure of companies suggest that all participants in the financial market are rational, but company leaders are characterized by behavioral deviations that significantly affect their financial decisions. In this paper, using various variables, we analyzed the significance of behavioral theories to explain the choice of financing policy by Russian companies. Several methods were used in the work to identify the degree of influence of the behavioral characteristics of managers on the formation of the capital structure. In addition to behavioral factors, traditional determinants were also included in the model. Among the traditional theories, the theory of the order of financing has an unambiguous confirmation on the data of the studied sample.

The results of the study for Russia are consistent with the results for developed countries regarding the influence of the level of confidence and optimism of the head on the amount of financial leverage. With regard to the influence of fundamental indicators, many researchers have concluded that companies in developing countries follow the order of financing theory. However, it has not been clearly established which of the traditional theories is acceptable for companies in developed countries.

In the work, the emphasis was placed on the analysis of the behavioral characteristics of managers to explain the choice of financing policy by Russian companies. A new behavioral factor was proposed - the risk taken by the manager, which turned out to be significant. It is important to note that behavioral factors have a significant impact on the formation of the capital structure of companies, so it is necessary to take them into account when modeling.

In addition, this work is of practical importance, since the identified behavioral determinants can be used to explain the deviation of the actual value of financial leverage from the optimal value. For the operating company "DIOD", such a deviation was analyzed and recommendations were given to achieve the optimal capital structure.

In a further study in the field of capital structure of companies, it is planned to expand the sample, namely, to apply the identified behavioral variables for other countries, as well as to use new quantitative indicators to measure the behavioral characteristics of company leaders. Since the developed variables make it possible only indirectly to assess the presence or absence of behavioral characteristics of managers, but not to measure their depth and strength.

Essence, functions and classification of enterprise capital. The practice of applying the method of optimizing the capital structure based on the criterion of maximizing the return on capital and analyzing the dependence "EBIT-EPS" in Russian conditions on the example of JSC "Silvenit".

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Due to the high dynamism of this indicator, it requires constant monitoring in the process of managing the effect of financial leverage. This dynamism is due to a number of factors. First of all, during a period of deterioration in the financial market (primarily, a reduction in the supply of free capital on it), the cost of borrowed funds can increase sharply, exceeding the level of gross profit generated by the assets of the enterprise. In addition, a decrease in the financial stability of an enterprise in the process of increasing the share of borrowed capital used leads to an increase in the risk of its bankruptcy, which forces creditors to increase the interest rate for a loan, taking into account the inclusion of a premium for additional financial risk in it. At a certain level of this risk (and, accordingly, the level of the general interest rate for a loan), the financial leverage differential can be reduced to zero (at which the use of borrowed capital will not increase the return on equity) and even have a negative value (at which the return on equity will decrease, since part of the net profit generated by equity capital will be spent on servicing the borrowed capital used at high interest rates). Grachev A.V. Growth of own capital, financial leverage and solvency of the enterprise / A.V. Grachev // Financial management. A.V. - 2002. - No. 2. - p.21-34

Finally, during the period of deterioration in the commodity market, the volume of sales of products decreases, and, accordingly, the size of the gross profit of the enterprise from operating activities. Under these conditions, a negative value of the financial leverage differential can form even at constant interest rates for a loan due to a decrease in the gross return on assets.

The formation of a negative value of the financial leverage differential for any of the above reasons always leads to a decrease in the return on equity ratio. In this case, the use of borrowed capital by the enterprise has a negative effect.

The financial leverage ratio is the leverage that multiplies (in proportion to the multiplier or coefficient changes) the positive or negative effect obtained due to the corresponding value of its differential. With a positive value of the differential, any increase in the financial leverage ratio will cause an even greater increase in the return on equity ratio, and with a negative value of the differential, an increase in the financial leverage ratio will lead to an even greater rate of decline in the return on equity ratio. In other words, an increase in the financial leverage ratio multiplies an even greater increase in its effect (positive or negative, depending on the positive or negative value of the financial leverage differential). Similarly, a decrease in the financial leverage ratio will have the opposite effect, reducing its positive or negative effect to an even greater extent.

Thus, with the differential unchanged, the financial leverage ratio is the main generator of both the increase in the amount and level of return on equity, and the financial risk of losing this profit. Similarly, with the financial leverage ratio unchanged, the positive or negative dynamics of its differential generates both an increase in the amount and level of return on equity, and the financial risk of its loss.

Knowledge of the mechanism of the impact of financial leverage on the level of return on equity and the level of financial risk allows you to purposefully manage both the cost and the capital structure of the enterprise.

Now we can formulate some rules related to the effect of financial leverage.

1. EGF differential must be positive. The entrepreneur has certain levers of influence on the differential, but such influence is limited by the possibilities of increasing the efficiency of production.

2. The financial leverage differential is an important information impulse not only for an entrepreneur, but also for a banker, since it allows you to determine the level (measure) of the risk of providing new loans to an entrepreneur. The larger the differential, the lower the risk for the banker, and vice versa.

3. The shoulder of financial leverage carries fundamental information for both the entrepreneur and the banker. Large leverage means significant risk for both participants in the economic process.

Thus, we can state that the effect of financial leverage makes it possible to determine both the possibility of attracting borrowed funds to increase the profitability of own funds, and the financial risk associated with this.

The rules formulated above allow the firm to specifically solve the problem of determining the amount of possible attraction of credits and loans. Lee Ch.F., Finnerty J. Corporate Finance: Theory, Methods and Practice / Lee Ch.F., Finnerty J. - M.: Infra-M, 2000. - P. 436-438.

2.2 The practice of applying the method of optimizing the capital structure based on the criterion of maximizing the return on equity in Russian conditions on the example of JSC "Silvenit"

To assess and determine the optimal capital structure of an enterprise, it is necessary to determine the actual ratio of equity and borrowed capital, determine the average calculated interest rate for the use of borrowed capital, suggest possible options for the structure and interest rate. The results are shown in table. 2.1.

Obviously, this effect arises from the discrepancy between the return on assets and the "price" of borrowed capital, i.e. average bank rate. In other words, the company must provide for such a return on assets that there is enough cash to pay interest on the loan and pay income tax.

It should be borne in mind that the average calculated interest rate does not coincide with the interest rate accepted under the terms of the loan agreement.

The average settlement rate for a loan is set according to the formula:

Rt \u003d (In / D) H100

where Rt is the average settlement rate for a loan;

In - actual financial costs for all loans received for the billing period (the amount of interest paid);

Table 2.1

Initial data for the analysis of the capital structure of OJSC "Silvenit" by the ROE maximization method.

Indicator	Share of borrowed capital
		30% (fact on balance)

1. Own capital (f. No. 1, p. 490), thousand rubles
2. Borrowed capital, thousand rubles.
3. The total amount of capital, thousand rubles.
4. Expenses for the use of borrowed capital
4.1.Average calculated interest rate, %
4.2. Amount (line 2 of line 4.1: 100%), thousand rubles
5. Debt ratio

Financial leverage characterizes the use of borrowed funds by an enterprise, which affects the change in the return on equity.

Table 2.2

Analysis of the effect of financial leverage of Silvenit OJSC

Indicator

Change in return on equity depending on different capital structure

Earnings before interest and taxes (EBIT), thousand rubles

Interest paid, thousand rubles

Taxable income, thousand rubles

Income tax, thousand rubles (20%)

Net profit (NP), thousand rubles

Return on equity (ROE), %

Level of financial leverage, coefficient

Change in EBIT, %

Change in NP, %

Range ROE

In other words, financial leverage is an objective factor that arises with the advent of borrowed funds in the amount of capital used by the enterprise, allowing it to receive additional profit on equity.

To analyze the effect of financial leverage of Silvenit OJSC, it is necessary to calculate taxable income, income tax, net income, return on equity for each option of the capital structure, and also assess the level of financial risk.

The calculation of the EFL value will be carried out according to the formula (1). The results of the analysis are given in table. 2.2.

As a result of data analysis table. 2.2. obtained that of all the options for the structure, the maximum value of the return on equity is achieved in the third case, i.e. with a share of borrowed capital of fifty percent. Return on equity will be 32.36%. This financing option can be characterized by several more indicators:

Net profit is less by 1376736.4 thousand rubles. than with the original capital structure;

Profitability growth amounted to 6.2%;

The increase in the level of financial leverage amounted to 0.18;

It can be concluded that the third financing option with EBIT = 13184379 thousand rubles. is optimal. This statement follows from the fact that:

3. CONTENT AND APPLICATION OF THE METHOD FOR OPTIMIZING THE CAPITAL STRUCTURE OF THE ENTERPRISE ON THE BASIS OF THE ANALYSIS OF THE DEPENDENCE "EBIT-EPS" ("EBIT-ROE")

3.1 The content of the method of optimizing the capital structure based on the analysis of the dependence "EBIT-EPS" ("EBIT-ROE")

Even in the conditions of the limited opportunities of the Russian financial market, the financial manager has certain alternatives in finding sources of financing for his organization. When making capital structure decisions, a financial manager is guided by two criteria; minimizing the weighted average cost of capital and maximizing earnings per share. Earnings per share (EPS) is calculated using the formula:

n is the number of outstanding ordinary shares.

Consider the graph of the dependence of the weighted average price of capital on the structure of sources of funds

As can be seen from the graph, the price of borrowed and own funds grows with an increase in the share of borrowed funds in liabilities. The weighted average price first falls and then starts to rise. Therefore, there is the “lowest” point on the WACC chart, dropping the perpendicular from which to the X axis, we will get the optimal capital structure. Financial management: textbook. allowance / A. N. Gavrilova [and others]. - 5th ed. - M. : KNORUS, 2010. - S. 296-300.

Rice. 3.1. Graph of the dependence of the weighted average price of capital on the structure of sources of funds

The WACC curve has a bowl-like shape without a well-defined minimum point. Thus, a relatively small deviation from the optimal capital structure will not have a significant impact on the value of WACC. Consequently, financial managers have the freedom to "maneuver" in managing the capital structure, which is necessary in a changing financial market environment.

In addition to the graphical method, you can use the EBIT-EPS method, which allows managers to evaluate alternative financial projects. This method is based on the determination of equilibrium points, i.e. such EBIT values at which EPS will have the same value, regardless of the chosen financing scheme.

The essence of the EBIT-EPS model is to choose a source of resources that will provide the maximum amount of earnings per share (EPS) with a constant amount of operating income (EBIT).

To do this, the first step is to determine the amount of resources needed by the enterprise, set the interest that the company is willing to pay for debt obligations.

After that, the cash flow from operating profit to dividend payment for each option is considered and then the EPS indicator is calculated from them.

At the next stage, a graph is built, on which EBIT values are plotted along the X-axis, and EPS values are plotted along the Y-axis. This graph indicates the values of the obtained calculations for each of the possible sources of attracting resources.

The equilibrium point between any two funding methods can be determined by finding the EBIT value from the following equation:

where EBIT is earnings before interest and taxes, m.u.;

In - interest on borrowed funds attributable to expenses, m.u.;

T - profit tax rate, coefficient;

Dp - dividends paid on preferred shares, m.u.;

E1 -- the amount of equity in the first method of financing;

E2 - the number of ordinary shares in the second method of financing. Financial management: textbook. allowance / A. N. Gavrilova [and others]. - 5th ed. - M. : KNORUS, 2010. - P. 296-300.

The EBIT-ROE method is a special case of the EBIT-EPS method. For analysis, this method uses return on equity (ROE) instead of earnings per share (EPS).

The logic of building this model is based on the fact that the return on equity is determined not only by equity, but also by borrowed capital. Thus, in order to identify the degree of influence of borrowed capital on the rate of return on equity, it is necessary to divide the return on equity into two parts: earned by itself and accumulated by borrowed capital. In this case, the second component can be negative. Then the use of borrowed capital is unprofitable for the company - the profit received does not cover the financial costs of servicing the debt.

The construction of this dependence from a mathematical point of view is associated with the transformation of the formula for the return on equity, taking into account the use of borrowed funds.

A graphical interpretation of the dependence of the return on equity and profit before interest and income tax is shown in Fig. 3.3.

First situation? the use of borrowed capital along with its own gives an increase in net profit per ordinary share and an increase in the return on equity.

The second situation - the use of borrowed capital does not change the financial result, i.e. companies do not care what to use - borrowed or equity capital.

Rice. 3.3. Return on equity versus earnings before interest and income taxes

The third situation - the use of borrowed capital leads to a decrease in net income per ordinary share and return on equity.

Fourth situation? the use of borrowed capital costs the company so much that the profit received does not cover the interest and it suffers losses.

Graphically, the definition of the optimal financial structure of capital is presented in fig. 3.4.

The analysis of the optimal capital structure is based on the calculation of two indicators: the point of indifference and the financial critical point. The point of indifference characterizes such profit at which the return on equity and net earnings per share do not change when using borrowed capital. This is possible when the EFR is equal to zero, that is, the economic profitability is equal to the average calculated interest rate.

Rice. 3.4. Determination of the optimal capital structure

To determine the point of indifference and the financial critical point, two financing options are considered: a mixed financing scheme and financing only from equity (Fig. 3.4.).

The point of indifference (TB) characterizes such a value of profit before interest and taxes (Pr), under which, under given conditions, the return on equity is the same both with a mixed financing scheme and with the use of only equity capital. The financial critical point (FCP) characterizes the situation in which the company has earnings before interest and taxes (Pr), and the return on equity is zero. This is possible if the profit generated by the company is only enough to cover interest (financial costs).

Let's consider four possible situations for determining the optimal capital structure.

The first situation (1) on the graph corresponds to a ray going to the right from the point of indifference, i.e., if the company earns profit before interest and taxes more than at the point of indifference, its EGF is positive and it is more profitable for it to use borrowed capital to increase return on equity.

The second situation (2) corresponds to the point of indifference.

The third (3) is characterized by a segment from the point of indifference to the financial critical point. Here, the accumulated profit is enough to cover interest, pay taxes and generate net profit. However, when using a mixed financing scheme, there is a decrease in the return on equity compared to financing from own funds and 5FR "negative.

The fourth situation (4) corresponds to the segment from the financial critical point to the origin. The profit earned here is not enough even to cover financial costs, and the company suffers net losses, having a positive profit before interest and taxes. Lisitsina E.V. Assessment of the financial structure of capital on the financial result of the company / E.V. Lisitsina // Finance and Credit. - 2004. -№2. - S. 15-20

3.2 The practice of applying the method of optimizing the capital structure based on the analysis of the dependence "EBIT-EPS" ("EBIT-ROE") in Russian conditions on the example of JSC "Silvenit"

The EBIT-ROE method allows you to evaluate alternative financial projects. This method is based on the determination of equilibrium points, i.e. such values of profit from operating activities (EBIT), at which the return on equity (ROE) will have the same value, regardless of the chosen financing scheme.

The essence of the EBIT - ROE model is the choice of a source of resources that will provide the maximum return on equity with a constant profit from operating activities.

In table. 3.1 shows the data used in this analysis method.

Table 3.1

Initial data for the analysis of the capital structure of Silvenit OJSC using the EBIT-ROE dependence analysis method

Indicator	Share of borrowed capital


1. Profit before interest and taxes (EBIT), you p. rub.
2. Interest paid, thousand rubles.
3. Taxable income, thousand rubles.
4. Income tax, thousand rubles. (20%)
5.Net profit (NP), thousand rubles
6. Own capital (f. No. 1, p. 490), thousand rubles
7. Return on equity (ROE), %

Let's calculate the equilibrium points for various options for the capital structure according to Table. 3.1. Formula (3) will be used for calculations

1) The first point of equilibrium between options I-II

We get EBIT = 5123716.168 thousand rubles.

2) The second point of balance between options I-III

We get EBIT = 6270901.467 thousand rubles.

3) The third point of balance between options I-IV

We get EBIT = 11454846.46 thousand rubles.

4) The fourth point of balance between options II-III

We get EBIT = 6534147.38 thousand rubles.

5) Fifth point of equilibrium between options II-IV

We get EBIT = 11910884.25 thousand rubles.

6) The sixth point of balance between options III-IV

We get EBIT = 14370815.53 thousand rubles.

The obtained data will be presented in a graphical expression in Fig. 3.5.

Rice. 3.5. Relationship between return on equity and operating profit

Conclusions: 1) If the EBIT level is higher than 5123716.168 thousand rubles, the 2nd financing option with a share of borrowed capital of 30% is better than the 1st financing option with a share of borrowed capital of 20%. If EBIT is below 5,123,716.168 thousand rubles, then an inverse relationship will apply.

2) If the EBIT level is above 6270901.467 thousand rubles. The 3rd financing option with 50% leverage is better than the 1st financing option with 20% leverage. If EBIT is below 6,270,901.467 thousand rubles, then an inverse relationship will apply.

3) If the level of EBIT is above 11454846.46 thousand rubles. The 4th financing option with 70% leverage is better than the 1st financing option with 20% leverage. Below this equilibrium point, an inverse relationship will operate.

4) If the level of EBIT is higher than 6534147.38 thousand rubles. The 3rd financing option with a share of borrowed capital of 50% is better than the 2nd financing option with a share of borrowed capital of 30%. Below this equilibrium point, an inverse relationship will operate.

5) If the level of EBIT is above 11910884.25 thousand rubles. The 4th financing option with 70% leverage is better than the 2nd financing option with 30% leverage. Below this equilibrium point, an inverse relationship will operate.

6) If the level of EBIT is above 14370815.53 thousand rubles. The 4th financing option with 70% leverage is better than the 3rd financing option with 50% leverage. Below this equilibrium point, an inverse relationship will operate.

7) With the actual level of EBIT = 13184379 thousand rubles. Based on the graph, it can be seen that the 3rd financing option with a share of borrowed capital of 50% is better than the other three financing options, because Option 3 provides the maximum return on equity (32.36%). In second place is the 4th financing option (ROE = 29.35%). However, it is necessary to take into account the fact that with small differences in the obtained ROE value between the 4th and 2nd financing options (3%), the fourth option is much more risky. Therefore, taking into account all the indicators, the second financing option can be attributed to the second place.

CONCLUSION

Capital is the property of an organization free of obligations, the strategic reserve that creates conditions for its development, absorbs losses if necessary, and is one of the most important pricing factors when it comes to the price of the organization itself, capital can also be understood as long-term liabilities.

The capital of any enterprise can be represented by two components: own and borrowed funds.

Capital functions

1) Capital is a production resource

2) Capital - an object of ownership and disposal.

3) Capital - part of financial resources

4) Capital is a source of income

5) Capital is an object of time preference

6) Capital - the object of sale

7) Capital - the carrier of the risk factor

8) Capital - the carrier of the liquidity factor

The formation of the optimal structure of capital is inextricably linked with taking into account the characteristics of each of its components. Own capital is characterized by the following main positive features: ease of attraction; higher ability to generate profits in all areas of activity; ensuring the financial sustainability of the development of the enterprise, its solvency in the long term, and, accordingly, the decline in the bankruptcy market. At the same time, it has the following disadvantages: limited attraction; high cost in comparison with alternative borrowed sources of capital formation; unused opportunity to increase the return on equity ratio by attracting borrowed funds.

Borrowed capital is characterized by the following positive features: fairly wide opportunities to attract; ensuring the growth of the financial potential of the enterprise, if necessary, a significant expansion of its assets and an increase in the growth rate of the volume of its economic activity; lower cost in comparison with own capital due to the effect of the “tax bill”; the ability to generate an increase in financial profitability (return on equity ratio). At the same time, the use of borrowed capital has the following disadvantages: the risk of insolvency increases; assets formed at the expense of borrowed capital form a lower (ceteris paribus) rate of return, which is reduced by the amount of loan interest paid in all its forms; high dependence of the cost of borrowed capital on fluctuations in the financial market; the complexity of the recruitment process.

When forming the capital structure, one of the most important problems is the problem of the optimal ratio of own and borrowed funds.

Capital structure theories:

Traditionalist concept of capital structure;

The concept of indifference of the capital structure;

A compromise concept of the capital structure;

The concept of conflict of interests in the formation of the capital structure.

One of the main tasks of capital formation - optimization of its structure, taking into account a given level of its profitability and risk - is implemented by various methods. One of the main mechanisms for the implementation of this task is financial leverage.

Financial leverage characterizes the use of borrowed funds by an enterprise, which affects the change in the return on equity ratio. In other words, financial leverage is an objective factor that arises with the advent of borrowed funds in the amount of capital used by the enterprise, allowing it to receive additional profit on equity.

An indicator that reflects the level of additionally generated return on equity with a different share of the use of borrowed funds is called the effect of financial leverage.

The essence of the EBIT-ROE model is to choose a source of resources that will provide the maximum value of return on equity (ROE) with a constant profit from operating activities (EBIT).

As of December 31, 2009, the equity capital amounted to 37,595,829 thousand rubles. (70%), the amount of borrowed capital amounted to 14561682 thousand rubles. (thirty%).

Based on the analysis by the method of maximizing the return on equity, we can conclude that the third financing option with EBIT = 13,184,379 thousand rubles. is optimal. This statement follows from the fact that:

Provides the maximum value of ROE = 32.36%;

The level of financial risk and the amount of net profit are comparable with the corresponding values with a smaller share of borrowed capital.

Based on the analysis of the EBIT-ROE dependence, we can conclude:

With the actual level of EBIT = 13184379 thousand rubles. Based on the graph, it can be seen that the 3rd financing option with a share of borrowed capital of 50% is better than the other three financing options, because Option 3 provides the maximum return on equity (32.36%). In second place is the 4th financing option (ROE = 29.95%). However, it is necessary to take into account the fact that with small differences in the obtained ROE value between the 4th and 2nd financing options (3%), the fourth option is much more risky. Therefore, taking into account all the indicators, the second financing option can be attributed to the second place.

Based on the analysis of the capital structure by two methods, it can be concluded that the optimal

capital optimization structure

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This work was downloaded from the site Bank of abstracts http://www.vzfeiinfo.ru Work ID: 27862

APPS

Appendix 1

Balance sheet

Continuation of Appendix 1

Annex 2

Profits and Losses Report

Continuation of Appendix 2

Hosted on Allbest.ru

EBIT and EBITDA: calculation and meaning of indicators

EBIT (earnings before interest and taxes) and EBITDA (earnings before interest, taxes, depreciation and amortization) indicators are not established by international financial reporting standards or national standards of Western countries as mandatory indicators.

These and some other indicators are called non-GAAP financial measures (“indicators that are not US GAAP financial measures”).

However, both EBIT and EBITDA are very widely used by analysts, investors and other stakeholders to assess the financial position and value of companies.

History of EBITDA
Historically, EBITDA has been used to measure a company's ability to service debt, meaning it, combined with net income, has provided information about how much interest payments a company can make in the short term. First of all, EBITDA was used by investors who considered the company not as a long-term investment, but as a set of assets that could be profitably sold separately, while EBITDA characterized the amount that could be used to repay loans.

Such a scheme (leveraged buyouts, in which a company is bought out with borrowed funds) was widespread in the 80s. Then the EBITDA indicator began to be used by most companies and today has become one of the most popular indicators. It shows the income that the business has generated in the current period and therefore can be used to evaluate the return on investment and self-financing opportunities.

Calculation of EBIT and EBITDA indicators
The classical calculation of these indicators is quite simple: in order to calculate them, you need to start with the net profit indicator for the period:

EBIT = Net Income - (Interest Expense/Income) - (Income Tax).

From the net profit indicator, it is necessary to exclude indicators of financial (interest) expenses or income, income tax:

EBITDA = EBIT - (Depreciation of fixed assets and intangible assets).

Example 1
Statement of comprehensive income for the year ended 12/31/2014

As you can see from the example, three companies whose net income differs significantly have the same EBITDA. The EBIT indicator is the same for companies with the same depreciation load, although company 1 made a profit at the end of the year, and company 2 made a loss (including due to different tax and debt burdens).

The meaning of EBIT and EBITDA
EBIT is an intermediate measure of earnings before interest and taxes.
EBITDA is a "cleaned" measure of net income from depreciation, interest and income tax, which allows you to evaluate the company's profit, regardless of the impact:

the amount of investment (adjustment for the amount of accrued depreciation);
debt burden (adjusted for interest);
tax regime (adjustment for income tax).

The main purpose of EBITDA is to use this indicator to compare different enterprises operating in the same industry, including for benchmarking purposes. At the same time, the size of investments, the debt burden or the applicable tax regime are not important - only the type of activity and operating results matter. Thus, EBITDA makes it possible to compare companies with different accounting policies (for example, in terms of accounting for depreciation or revaluation of assets), different tax conditions or levels of debt.

Criticism
The main criticism of EBITDA is as follows: by clearing the figure from depreciation, we deprive the user of information about the company's need for investment.

At the same time, companies with a high depreciation load and a high need for reinvestment (extractive industries, manufacturing, and others) are interested in actively using this indicator and inflating their results, since the depreciation adjustment significantly improves the profit indicator.

This criticism is justified, but in any case, EBITDA should be considered in conjunction with other indicators, including EBIT, which, having the advantages of "clearing" from taxes and interest, contains depreciation. It is also necessary to analyze other indicators such as gross margin, operating and net income.

Additionally, EBIT and EBITDA indicators are criticized for the fact that in the classical version they contain all income - both from regular activities (operating) and from one-time operations (non-operating). Most companies calculate EBIT and EBITDA by subtracting non-operating income and expenses, excluding non-operating results. In addition, as an alternative option, many analysts, investors and CFOs of companies use operating income to assess the company's regular activities and the ability to predict the generation of operating cash flows. However, additional cleaning of indicators can be dangerous in that the amount of non-operating income and expenses, as well as the indicator of operating profit, will become the subject of manipulation when non-operating expenses and operating profit turn out to be significantly overestimated, which should also be taken into account when analyzing the company.

Analysis using EBIT and EBITDA
Currently, EBIT and EBITDA are widely used in the analysis of companies. The following derived indicators are used, among other things:

EBITDA margin % (EBITDA margin);
Debt/EBITDA (liabilities/EBITDA);
Net Debt / EBITDA (net debt / EBITDA);
EBITDA / Interest expense (EBITDA / interest expense).

Credit institutions can set their own target values of indicators by which they monitor the financial position of borrowing companies.
Company owners can also set target values with which they analyze the financial position and development of companies, as well as evaluate the performance of management
companies.

Differences between EBIT and EBITDA and operating income

Operating income and EBIT/EBITDA are different measures. If the classic EBIT / EBITDA indicators include all income and expenses - operating and non-operating (except for interest, taxes and depreciation), then non-operating income and expenses are not included in operating income.
Non-operating (or non-operating) income or expenses are considered irregular or one-time income and expenses that are not related to the normal activities of the company. For example, most often these are income from investment activities (if such activities are not regular for the company), proceeds from a one-time operation of irregular activities, expenses not related to the activities of the company, exchange differences, discontinued activities, and others. At the same time, the profit (loss) from the sale of fixed assets, allowance for doubtful debts, impairment of assets, as well as most other expenses, as a rule, are part of operating income.
Operating income is included in the calculation of another non-GAAP indicator - OIBDA (operating income before depreciation and amortization - operating income before depreciation of fixed assets and intangible assets). As you can see from the name of the indicator, the difference between OIBDA and EBITDA is the composition of profit: OIBDA contains only operating income, non-operating income and expenses are excluded.

Example 2
Using the data from Example 1, we calculate OIBDA for three companies.
The OIBDA margin in this case is higher than the EBITDA margin, as it does not contain the amount under the “Other expenses” item.

At the same time, despite the different indicators of operating profit, OIBDA is the same for all three companies under consideration.

Features of IFRS requirements for operating results
Reflection of non-operating results - in the rules of US-GAAP reporting, while IFRS contains a requirement not to record items as extraordinary items.

On the one hand, entities may, but are not required to, report an interim operating profit above profit (loss) for the period. In general, the concepts of "operational" or "non-operational" are not defined by international standards.

On the other hand, an entity should present additional line items, headings and subtotals in the statement presenting profit or loss and other comprehensive income when such presentation is relevant to an understanding of the entity's financial results. Because the impacts of an entity's activities, operations, and other events vary in terms of frequency, potential for profit or loss, and predictability, disclosing information about the components of financial results helps users understand their financial results and forecast future results.

An entity includes additional items in the statement presenting profit or loss and other comprehensive income and adjusts the headings used and the order in which the items are presented, if necessary to clarify the elements of financial results. An entity considers factors including materiality and the nature and function of income and expense items.

Often, companies in IFRS statements are indicated in the article “Other income” or “Other non-operating income” (Other income / Other non-operational income), as well as “Other expenses” or “Other non-operating expenses” (Other expenses / Other non-operational income). expenses) the results of activities that are considered irregular and not related to the main operating activities.

This feature of international standards may cause OIBDA from EBITDA in the part used to calculate profits to be identical if the company does not highlight the results for non-regular activities. However, often companies, independently determining the nature of items and wanting to improve operating profit, may overestimate non-operating expenses. In this sense, the IFRS requirement not to define items as extraordinary or non-operating items is quite reasonable and dictated by the need not to mislead the user of statements.

Thus, the company, presenting the calculation of EBIT and EBITDA, for the purposes of determining these indicators, can identify items with financial results of irregular operations and use them in the calculation. It is not required, but it is recommended to disclose the calculation method.

Adjusted EBITDA

EBIT and EBITDA are very popular and widely used to assess the financial position and value of companies; many companies include non-GAAP indicators in their financial statements, including those prepared according to international standards.

However, the methodology for calculating these indicators in different companies may differ. Different calculation methods lead to the incomparability of the performance of different companies (that is, they level out the main advantage of EBIT and EBITDA). In addition, various approaches to the formation and presentation of non-GAAP indicators in reporting provide great opportunities for manipulating these indicators in an effort to improve them.

The active use of these indicators by investors and the presentation of non-GAAP indicators by companies in their financial statements caused the regulator to pay attention to these indicators in the early 2000s. Initially, EBIT and EBITDA were calculated on the basis of US GAAP reporting and are currently governed by the rules of the US SEC (U.S. Securities and Exchange Commission). SEC rules establish a classic formula for calculating EBIT and EBITDA based on US GAAP reporting and do not allow these figures to be cleared from other expenses, except for income tax, interest and depreciation. Indicators that are calculated in a different way cannot be called EBIT and EBITDA, therefore, companies that deviate from the classical formula for one reason or another call these indicators differently, most often adding the definition of “adjusted” (adjusted): “adjusted EBIT”, “adjusted EBITDA", "adjusted OIBDA" and so on.

Most often, EBITDA is additionally cleared from the following items in the statement of comprehensive income:

extraordinary (non-operating) income and expenses (if reporting standards allow the existence of such items or if they can be identified from additional disclosures);
exchange differences;
loss from the sale (disposal) of assets;
impairment losses for various groups of assets, including goodwill;
stock-based compensation;
share of the result in associates and joint ventures and operations;
accrual of reserves for various needs.

Example 3
As an example, consider the Gazprom Neft Group's 2014 financial statements prepared in accordance with IFRS.
In Note 39 “Segment Information” on page 55, the company discloses adjusted EBITDA by segment and comments as follows: “Adjusted EBITDA represents the Group's EBITDA and its share of EBITDA of associates and joint ventures. Management believes that Adjusted EBITDA is a useful tool for assessing the performance of the Group's operations, as it reflects the evolution of earnings without taking into account the impact of certain charges. EBITDA is defined as earnings before interest, income tax expense, depreciation, depletion and amortization, foreign exchange gains (losses), other non-operating expenses and includes the Group's share of income of associates and joint ventures. EBITDA is an additional non-IFRS financial measure used by management to measure performance.”
Further, on page 57, the calculation of Adjusted EBITDA is disclosed.:

In the calculation of EBITDA, the company includes “Foreign exchange loss” and “Other expenses”, which it considers non-operating. Further, the indicator is adjusted for the results of associates and joint ventures.
If we calculate EBITDA using the classic formula, we get the following data:

For 2014, the difference between the classic and adjusted figures is quite significant - about 30%, mainly due to a significant amount of exchange rate differences and the share of EBITDA in associates.

Example 4
Let's consider another reporting - X5 Retail Group for 2014 in accordance with IFRS.
The statements show the calculation of adjusted EBITDA (“adjusted EBITDA”) (p. 98), from which it can be seen that, in addition to depreciation, taxes and net interest expenses, the loss is additionally deducted
from impairment (impairment), exchange differences (net foreign exchange result) and the share of loss in associated companies (share of loss
of associates).

If we do a classic EBITDA calculation, we get the following results:

Classic EBITDA is 6% less than adjusted EBITDA for 2014 mainly due to the impact of impairment of property, plant and equipment and intangible assets; according to the results of 2013, the indicators are almost equal, since the impact of asset impairment was insignificant.

Features of calculating EBIT and EBITDA according to IFRS reporting

Impairment loss
Impairment accounting for assets is governed by IAS 36, as well as other standards governing the accounting for impairment of related assets (for example, IAS 2, IAS 39).
Classical EBITDA should not be cleared of any impairment loss, but adjusted figures are often cleared of such non-monetary items. Quite often, companies remove the impairment of goodwill and other intangible assets from the calculation, citing the fact that these losses occur one-time and do not relate to the regular operating activities of the company. In addition, the argument is that the impairment of fixed assets and intangible assets is close in meaning to depreciation and should also be excluded from EBITDA.

Interest income
The formula for calculating EBIT and EBITDA contains the indicator "Interest (or financial) expense" (interest or finance expense). It should be taken into account that this refers to the net result of accrued interest income and expenses (net interest expense). Accordingly, accrued interest income should be included in the calculation of EBIT and EBITDA (interest income should be deducted from the calculated figure).

Share resulting from associates and joint ventures and operations
Accounting for investments in associates and joint ventures and operations is governed by IAS 28 and IFRS 11.

The classic formula for calculating EBIT and EBITDA does not include the subtraction of the share of profit or loss of associates and joint ventures and operations, however, the adjusted figure can often either be cleared of this income or expense, or, as in the Gazprom Neft Group reporting in example 3 above, adjusted from taking into account the specifics of participation as a result of associates and joint ventures and operations.

Extraordinary income and expenses
Some sources claim that EBIT and EBITDA figures exclude extraordinary income and expenses.

However, first, as described above, IAS 1 explicitly requires that no items of income or expense be presented in the statements of profit or loss and other comprehensive income or in the notes as extraordinary items. This means that in IFRS reporting we cannot always see the amounts that are characterized by the enterprise as extraordinary or non-operating income or expenses, and, therefore, we cannot use them in the calculation.

Secondly, the classic SEC methodology does not allow clearing EBIT and EBITDA from additional items other than taxes, interest and depreciation; while net income under US GAAP (net income) contains non-operating expenses and income. Therefore, to calculate EBIT and EBITDA, IFRS reporting data, which does not contain allocated extraordinary income and expenses, is sufficient.

Profit/loss from the sale of fixed assets and intangible assets
Profit/loss from the sale of fixed assets and intangible assets is included in the net income for the period and is not deducted when calculating EBIT and EBITDA. However, sometimes companies deduct this profit or loss from an adjusted figure, especially if such a transaction is sufficiently unusual for the company's activities and the amount of the transaction is significant.

Stock-based compensation (remuneration to employees and directors in equity instruments)
The accounting for share-based awards is governed by IAS 19 and IFRS 2. Under IFRS, if goods or services received or acquired in a share-based payment transaction do not qualify for recognition as an asset, then they should be recognized as expenses.

Some companies deduct these costs from EBIT or EBITDA as "non-cash" (non-cash), although the classical method of calculation does not deduct these costs.

income tax
Income tax reporting is governed by IAS 12. Income tax includes both current tax and deferred income tax expense or income. To calculate EBIT and EBITDA, all accrued expenses or income related to income tax must be taken into account in the calculation formula.

In some cases, companies adjust the income tax figure to calculate EBIT and EBITDA, correcting taxable income for expenses and income, which are taken into account when calculating EBIT and EBITDA.

It is important to note that, in accordance with IFRS, income taxes withheld from dividends paid are not included in income tax, but are an integral part of dividends and, accordingly, are not disclosed in profit (loss) and are not included in the calculation of EBIT and EBITDA.

Other comprehensive income
In IFRS, much attention is paid to describing the requirements for the recognition of items in profit (loss) or other comprehensive income.

As a rule, the calculation of EBIT and EBITDA indicators includes data from the section (or report) on profit (loss); data that is included in other comprehensive income is generally not included in the calculation of EBIT and EBITDA. These may include revaluation amounts of property, plant and equipment, intangible assets, pension plans, the effective portion of profits and losses from hedging instruments for cash flow hedges, foreign exchange and translation differences, the share of other comprehensive income of associates and joint ventures, expenses and income from deferred taxes relating to to components of other comprehensive income, and other items.

Presentation of EBIT and EBITDA in IFRS statements
Most often, companies present non-GAAP figures in supplementary reports, releases, and presentations, but it is not uncommon for EBIT and EBITDA to be disclosed in financial statements.
EBIT and EBITDA may be disclosed both in the statement of comprehensive income and in the notes—there is no prohibition on the use of non-GAAP measures. There are also no direct IFRS requirements for additional disclosure of the calculation of non-GAAP indicators, however, given the importance of these indicators for users, companies are encouraged to make such disclosure.
Below are examples of the statement of comprehensive income of companies whose depreciation may be disclosed in different parts of the statement.

If in a manufacturing company depreciation is contained in the cost of production, then, for example, in a telecommunications company, depreciation can be disclosed as a separate line.