Cost of capital

T

F = -----------

  C

where F - return on assets ratio, m.;

T - total revenue from product sales, th;

C - average cost of capital stock, the KZT.

The average annual value of fixed assets is determined for each group of assets with regard to their deployment and disposal. Capital productivity growth indicates an increase in efficiency of fixed assets. Capital intensity of production is the reciprocal of the return on assets. It characterizes the cost of fixed assets (in tiyn), advances in one Tenge sales revenue:

   C

Fe = ------------ x 100

   T

where Fe - capital intensity of production, tiyn;

C - average cost of capital stock, the KZT;

T - Revenues from product sales, th;

100 - translation of tenge tiyn.

Reduced capital ratio indicates an increase in production efficiency of fixed assets.

 

Table № 6

Analysis of the effectiveness of the fixed assets of PC “Embamunaygeofizika”

From last year Current year change

Proceeds th 105 976 277 415 + 171 439

The average annual value of fixed assets, th 97 029 155 481 + 58 452

Capital productivity of capital assets, th 1.1 1.78 + 0.68

Capital intensity of production, KZT 91.56 56.05 - 35.51.

The table number 6 that the yield of capital investments of JSC Embamunaygeofizika for the year increased by 68 tiyn (1 m. 10 tiyn up to 1 m. 78 tiyn), causing a reduction in capital ratio of production to 35.51 tiyn (from 91.56 to 56, 05 tiyn). It describes the positive financial position of PC “Embamunaygeofizika” and points to the efficient use of capital assets. The latter contributed to savings of capital investments amounting to 98 510 (35.51 * 277 415/100).

Indicator of capital productivity is closely linked to productivity and capital / labor, which is characterized by the value of fixed assets attributable to one employee.

We have:

      T 105 976 277 415

B = ----------- = ----------- = 972, 3, B = ----------- = 1016.2;

  R 109,273

  From 97029155481

PV = ----------- = ---------- = 890.2, ~ B = ----------- = 569.5;

   R 109,273

T = BR = 972,3 * 109 = 105,976, T = 1016.2 * 273 = 277 415;

C = FvR = 890.2 * 109 = 97 029, C = 569.5 * 273 = 155 481;

  T BR B 105 976 972.3 * 109 972.3

F = --------- = -------- = -------- = ---------- = --------- -------- = --------- = 1.09,

  With FvR ~ B 97 029 890.2 * 109 890.2

       277 415 1016 2 * 273 1016.2

F = ------------- = ------------------- = ----------- = 1 78,

       155 451 569.5 * 273 569.5

Where B - productivity, m.;

R - Number of employees, pers.;

FW - capital-labor ratio of labor m.;

F - return on assets ratio of fixed assets, the tenge.

Factor analysis of return on assets of fixed assets of PC “Embamunaygeofizika”

 

Indicators

Last year

Changing the accounting year

   absolute in%

Proceeds th 105 976 277 415 +171 439 261.8

Average number of employees, pers. +164 109 273 250,4

Labour productivity of one of average worker, th 972.3 1016.2 43.9 104.5

The average annual value of fixed assets, th 97 029 155 481 +58 452 160.2

Capital-labor ratio of average labor of one worker, th 890.2 569.5 - 320.7 1964

Capital productivity of capital assets, m. 1.09 1.78 0.69 163

   

Thus, the essential condition for the growth of capital productivity is increasing productivity growth over the pace of growth capital / labor. The table number 6 shows that growth in capital productivity of fixed assets of PC Embamunaygeofizika "163% occurred due to higher productivity growth (104.5%) over the pace of growth of capital / labor (64%). The degree of influence of each of these factors on return on assets of fixed assets is determined using factor analysis. Factor analysis is carried out taking the chain supports.

To do this, is, therefore, the following calculations:

  At 972.3

O = --------- = ------------ = 1.09;

  FVO 890.2

  B1 1016.2

Fo1 = ------- = ------------ = 1.14;

  FVO 890.2

  B1 1016.2

F1 = ---------- = ----------- = 1.78;

  Fv1 569.2

Consequently, the increase in return on assets of fixed assets of PC Embamunaygeofizika "at 0.69 m. Various factors have influenced in such amounts:

1. The growth in worker productivity has increased returns on assets of fixed assets at 0.05 m. (Fo1-o = 1.14 - 1.09);

2. Growth capital / labor increased return on assets of fixed assets at 0.64 m. (F1-Fo1 = 1.78 - 1.14).

Total: 0.64 + 0.05 = 0.69.

4.2. Analysis of the effectiveness of working capital

Business activity in the financial aspect is primarily manifested in the rate of turnover funds. Acceleration of turnover of working capital reduces the need for them, allows the company to release part of the working capital or for the needs of the economy (the absolute release), or for additional output (on the release). Rate of turnover of assets - the complex index of organizational and technical level of the enterprise. Increased speed is achieved by reducing production time and reduce the time of referral.

Production time due to the process and the nature of technology, shorter treatment is achieved by the development of specialization and cooperation, improving direct Inter-Enterprise Relations, the acceleration of transportation, documentation and calculation.

The total turnover of working capital is made up of private turnover of individual items of working capital. Turnover rate (as the common and private) is as follows:

The duration of one revolution:

LE = E * T / Np LE = E / Np / T

where E - the average cost of working capital (see the rest of the. funds)

T - the length of the period, days.,

Np - revenues from sales (excluding VAT, excise duties and similar payments)

Np / T - A one-day sales.

 

LE99 = 168,6 * 365 / 106 = 580.5 days.

LE2000 = 320,2 * 365 / 277.4 = 421.3 days.

During 2000, the duration of one rotation decreased by more than 0.73 times or 159.2 days, which is mainly due to increases in revenue and a slight decrease in the average value of all revolving funds.

Number of turns

(Direct turnover ratio)

Kn = Np / E

Kp99 = 106 / 168.6 = 0.63

Kp2000 = 277.4 / 320.2 = 0.87

During 2000, the number of turns increased by more than 1.38 times or 0.24 trafficking, which is caused primarily an increase in revenue and a slight decrease in the average value of all revolving funds.

Coefficient of securing working capital

(Return rate of turnover)

Co = E / Np

Ko99 = 168.6 / 106 = 1.59

Ko2000 = 320.2 / 277.4 = 1.15

During 2000, the coefficient of consolidation of current assets decreased by more than 0.72 times or 0.44, which is caused primarily an increase in revenue and a slight decrease in the average value of all revolving funds.

According to the results of turnover calculated the amount of savings of working capital or additional amount of their involvement.

To determine the amount of working capital savings D E as a result of acceleration of their turnover establish the need for working capital during the reporting period based on actual receipts from all sales for this period and the rate of turnover for the previous period. The difference between this notional amount of working capital and the amount of funds actually involved in the turnover amounted to savings.

If turnover is slowed down (it turns «-»), then the result is a sum of money involved in extra turnover.

K = Np / EE = Npotch / Kotch E '= Npotch / Kbaz

D E = E '- E D E = Npotch / Kbaz - Npotch / Kotch

D E = 277,4 / 0,63 - 277,4 / 0,87 = 440 - 319 = 121 thousand tenge

Savings (deficit) of working capital can be defined as the sum of one-day sale and the difference in days of turnover and accounting reference period.

D E = Npotch / T * [Eotch * T / Npotch - Ebaz * T / Npbaz]

D E = Npotch / T * [LEotch - LEbaz]

D E = 277,4 / 365 * [320.2 * 365 / 277.4 - 168.6 * 365 / 106]

D E = 277,4 / 365 * [421.3 - 580.5] = - 121 tenge.

Saving current assets amounted to 121 thousand tenge, which is caused by an increase in the rate of turnover and increase revenue.

Efficient use of working capital is characterized primarily by their turnover. Under the turnover of funds meant the length of the passage means of separate stages of production and circulation. Time during which the current assets are in circulation, ie sequentially pass from one stage to another, constitute the period of turnover of working capital. Working capital turnover is estimated duration of one turn in days or number of revolutions of the period.

Table № 7

Analysis of turnover of working capital of JSC Embamunaygeofizika "

From last year Current year change

Proceeds th 105 976 277 415 171 439

Number of days of the period 360 360 -

One-day sales, th 294.4 770.6 476.2

Average balance of working capital, th 23 949 40 359 +16 410

The duration of one revolution days. 81,3 52,4 -28,9

Turnover ratio means turnover 4.43 6.87 2.44

Load factor of vehicles and traffic, tiyn 22.6 14.54 -8.06

The table shows number 7, that the turnover of capital of PC “Embamunaygeofizika "accelerated to 28.9 days (from 81.3 to 52.4). This led to an increase in turnover ratio of 2.44 on turnover (from 4.43 to 6.87) and lower utilization rates of the turnover at 8.06 (from 22.6 to 14.54). Changing the rate of turnover of working capital has been achieved by the interaction of 2 factors: increased revenue by 171 439 thousand tenge (277,415 - 105,976) and the average balance of working capital for the 16,410 th (40,359 - 23,949). Impact of each of these factors on the overall acceleration of turnover of working capital is characterized as follows:

- Increase in revenue accelerated turnover of working capital at -50.2 days (23,949 / 770.6 - 81.3);

- Increase in the average balance of working capital to 16 410 tenge slow turnover of funds in the 21.3 (16 410 / 770.6).

Total: -50.2 + 21.3 = -28.9 days

Acceleration of turnover of working capital at 28.9 days freed from the turnover of funds in the amount of 22 270 (-28.9 * 770.6) th.

Value of economic benefits derived from accelerating turnover of working capital, can be determined using a load factor of a reverse. So, if last year to get one Tenge revenue was spent 22.6 tiyn revolving funds, in the year - only 14.54 tiyn, ie less at 8.06 per tiyn tenge earnings. Consequently, the total cost of working capital to total revenue is:

-8,06 * 277 415

------------------ = 22,360 th

       100

The difference in the 90 th due to rounding of figures in the calculation.

                  

4.3. Calculation and analysis of profitability

Cost-effectiveness - efficiency, profitability, profitability of the enterprise or business. Quantitatively, the profitability is calculated by dividing the profit on costs, the consumption of resources.

Return on sales

R1 = Pr / B * 100%

Shows how much profit falls on unit sales.

R199 = 1,723 / 106 * 100% = 1.63%

R12000 = 1,515 / 277,4 * 100% = 0,55%

In 1999 return on sales amounted to 1.63% in 2000, PC “Embamunaygeofizika” 'profits get smaller, so R12000 suggests that 1.08% of the revenue received is less than the previous year.

Overall profitability

R2 = Pbal / B * 100%

R299 = 2,462 / 106 * 100% = 2,32%

R22000 = 2,164 / 277,4 * 100% = 0,78%

In 1999 the total return was 2.32% in 2000, PC “Embamunaygeofizika” income received by less than 1.54% over the previous year.

Return on equity

R3 = Pbal / (capital and reserves) * 100%

Shows the effectiveness of equity.

R399 = 1,723 / 48,8 * 100% = 3.53%

R32000 = 1,515 / 36,3 * 100% = 4,17%

For the year 2000 was an increase of efficiency of equity at 0.64%.

Economic profitability

R4 = Pbal / (total assets) * 100%

Shows the efficiency of the entire property of the organization.

R499 = 1,723 / 168,6 * 100% = 1,02%

R42000 = 1,515 / 320,2 * 100% = 0,47%

In 1999 the economic return was 1.02% in 2000, Public Corporation “Embamunaygeofizika” amounted to 0.47%, which is 0.55% lower.

Fondorentabelnost

R5 = Pbal / (fixed assets) * 100%

Shows the effectiveness of fixed assets and other non-current assets.

R599 = 1,723 / 37,763 * 100% = 4.56%

R52000 = 1,515 / 159,817 * 100% = 0,95%

In 1999 fondorentabelnost was 4.56% in 2000, OAO Embamunaygeofizika "amounted to 0.95%, which is 3.61% lower.

Return on operating activities

R6 = Pr / (cost of production and sales (P №  2)) * 100%

Shows how much profit from the sale of accounts for 1 tenge costs.

R699 = 1,723 / (87,793 +16,46) * 100% = 1.723 / 104.253 * 100% = 1.6%

R62000 = 1,515 / (214,962 +60,938) * 100% = 1.515 / 275.9 * 100% = 0,55%

In 1999 the profitability of operating activities amounted to 1,6% in 2000, OAO Embamunaygeofizika "amounted to 0.55%, which is 1.05% lower.

Return on permanent capital

R7 = Pbal / (Shareholders' equity + Long-term liabilities) * 100%

Shows the efficiency of capital invested in the organization for a long time.

R799 = 1,723 / (48,8 +0) * 100% = 3.53%

R72000 = 1,515 / (36,3 +42,9) * 100% = 1.91%

During 2000 there was a huge decrease in the efficiency of capital invested in the organization for a long time.

Payback period on equity

R8 = (capital and reserves) / Pbal

Shows the number of years, during which full return on investments in this institution.

R899 = 48,8 / 1,723 = 28,3

R82000 = 36,3 / 1,515 = 24

Efficient use of capital in general. Capital as a whole is the sum of working capital, fixed assets, intangible assets. Efficient use of capital best reflect its profitability. The level of return on equity is measured in% th respect to profit before tax to the value of capital.

Table number 8

Analysis of return on equity of OAO Embamunaygeofizika "

From last year Current year change

The balance sheet profit 1723 1515 - 208

Tenge

Proceeds th 105 976 277 415 171 439

Balance sheet profit

% Of total revenues 1.63 0.55 -1.08

The average balance of circulating

means th 23 949 40 359 +16 410

Average annual cost

fixed assets, th 97029155481 58 452

Average annual cost

intangible assets

th 430 470 40

The total amount of capital

th 121 408 196 310 74 902

Level of profitability

Capital,% 1.42 0.77 -0.65

Rate of turnover

Working capital turnover 4.43 6.87 2.44

Capital productivity of fixed assets

KZT 1.09 1.78 0.69

Intangible capital productivity

assets KZT 246.5 590.2 343.7

    

 

 

 

 

 

 

 

 

 

 

 

 

Conclusion

Under the cost of capital means the income that should bring new capital investment to ensure that they justified themselves. The cost of capital expressed as a percentage rate of the amount of capital invested in any business, you want to pay the investor during the year for the use of its capital. Investor may be a creditor, a shareholder of the enterprise or the enterprise itself. In the latter case, the company invests its own capital, which was formed during the period preceding the new capital investments. In any case, the use of capital must be paid and the amount of the payment appears on equity.

It is usually assumed that the cost of capital, in other words the income that investors expect to receive from alternative investments of capital at a constant value at risk. If a company wants to get the funds, it must provide income to them at least equal to the income that can bring investors to alternative investments. The main application area of ​​capital assesses the cost effectiveness of capital investments. The discount rate, which is used in the methods of calculating the efficiency of investment, this is the cost of capital, which is embedded in the enterprise. Thus, the cost of capital of the enterprise is the minimum rate of return earned by investing in the project money.

Capital, as well as other factors of production, has a cost, which forms the level of operating and investment costs. Cost of capital - that is his price, which the company pays for his involvement from various sources.

Since the cost of capital is part of the profits that the enterprise should pay for the use of shaped or attracting new capital to ensure that the process of production and sales, this figure stands a minimum rate of return from the operating (core) activities. If the profitability of operations is lower than the price of capital, it will lead to "eating through" capital and the bankruptcy of the enterprise. In addition, the cost of capital is used as the discount rate in the implementation of real and financial investment. If the rate of return on the investment project below the price of capital invested, then such a project would be unprofitable, this will also reduce the company’s capital.

The cost of capital has an impact on what funding sources are available to businesses. Interest payments on debt sources are treated as gross costs (that is included in cost) and therefore makes debt financing sources more profitable for the company. But at the same time, the use of borrowed resources is more risky for companies as well as interest payments and repayment of principal should be performed regardless of the outcome of the investment project

At the cost of capital following factors:

• The level of profitability of other investments;

• The risk of this investment (the larger the amount of risk present in the company's assets, the greater should be the income derived from them in order to attract investors);

• Sources of funding.

Capital, in its-kind acts in the form of fixed production assets used to produce goods and services, plays a crucial role in the intensification of production and increase its efficiency.

Capital has several interpretations. We give some:

Capital - this is the means of production, created by people including tools, industrial equipment and infrastructure;

Capital - a cost that brings added value, no matter what it is embodied: in money, goods, capital goods;

Capital - funds intended for the purchase of equipment and buildings.

Thus, this study examined the concept and essence of capital, as well as its structure and cost.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References

http://befik.info/biznes/18-stoimost-kapitala-ponyatie-i-sushhnost.html

http://www.pro-financier.kz/treasures/theory/th_15_fundamental_analys.html

http://www.investiciy.net/investitsii/stoimost-kapitala.html  1.

Абчук В.А. Лекции по финансовому  менеджменту : анализ стоимости и  структуры капитала. -СПб.:Союз, 2000.

Кохно П.А. / Микрюков В. А. / Коморов  С. Е. Менеджмент. М.: Финансы и статистика, 1993.

В.И. Подолякин  Основы экономики  организации: стоимость и структура  капитала. Учебное пособие. Иваново 2005