Indicative asset for financiers 8. Net assets: formula
A). The standard establishes the maximum ratio between short-term assets (short-term receivables for loans provided by the cooperative), repaid within twelve months after the current date and the amount of liabilities of the cooperative (for the personal savings of shareholders transferred to the cooperative, their loans attracted from shareholders and persons who are not shareholders of the cooperative) , the deadline for which falls within the next twelve months.
The standard is calculated using the formula:
FN8 = SDT/SDO * 100%
- SDT – amount monetary claims credit cooperative, the payment term for which occurs within 12 months after reporting date.
- SDO – amount monetary obligations credit cooperative, the repayment period for which occurs within 12 months after the reporting date.
B). The minimum acceptable value of the FN8 standard for credit cooperatives whose period of activity is 180 days or more from the date of their creation is set at:
- 30 percent – until June 30, 2016 inclusive;
- 40 percent – from July 1, 2016;
- 60 percent – from January 1, 2017;
- 75 percent – from January 1, 2018.
For credit cooperatives whose period of activity is less than 180 days from the date of their creation, the minimum acceptable value of the financial standard FN8 is set at 50%.
5.2.2. Economic meaning of the standard
In its economic meaning, the financial standard FN8 is similar to the general liquidity indicator, which regulates the risk of loss of liquidity over the next twelve months. The standard characterizes the cooperative's ability to cover its short-term obligations using current assets. The current assets of a credit cooperative are represented by accounts receivable for loans provided to shareholders and second-level cooperatives, and the bulk of liabilities are formed from personal savings transferred by shareholders and loans raised from shareholders - legal entities and persons who are not shareholders of the cooperative. Therefore, the standard actually regulates the relationship between in cash receivables and obligations falling due within the next twelve months.
The financial standard is being implemented over two years with a consistent tightening of the share of short-term assets in liabilities. If in the first half of 2016 it is assumed that only 30% of the obligations on funds attracted by the cooperative, the repayment period of which falls in the next year, will be fulfilled through loans repaid by shareholders, then by January 1, 2018 this share should already be 75%. In this way, the level of liquidity of the cooperative will be consistently increased in relation to obligations on raised funds. This does not mean that the structure of receivables and liabilities for borrowed funds will shift to the short-term segment. Along with short- and medium-term lending, the cooperative can also develop the practice of long-term lending, while motivating shareholders to transfer savings and loans for a long term.
5.2.3. Initial data and procedure for calculating the FN8 standard.
The amount of receivables for loans provided by the cooperative, repaid within 12 months after the reporting date, funds available to the cooperative is determined by the indicators of the accounts:
The amount of liabilities for borrowed funds repaid within 12 months after the reporting date is determined according to the account indicators:
- 66.1 “Short-term loans”;
- 66.3 “Short-term loans”.
Not all assets can be repaid on time; some of them are formed from problem debts, the repayment of which was delayed. In accordance with Bank of Russia Directive No. 3322-U dated July 14, 2014, the cooperative forms a reserve for possible loan losses in relation to such debt. In order to adequately assess the liquidity resources of the Cooperative, it is advisable to take into account, along with obligations maturing within the next 12 months, the amount of the reserve formed by the cooperative for possible loan losses in successively increasing shares, as provided for in clause 9 of Directive No. 3322-U.
The amount of the reserve formed by the cooperative for possible losses on loans is reflected in account 59 “Provisions for the depreciation of financial investments.”
The ratio between the amount of monetary claims and obligations of a credit cooperative due within the next 12 months is calculated using the following formula:
FN8 = ∑(account.58.3;account.58.2)/∑(account.66.1;account.66.2;account.63(account.59)) * 100% ≥30%;40%;60%;75%;50%
To assess the FN8 standard in the system of accounts accounting in the NFO introduced from January 1, 2018, along with the previously described accounts, the following accounts can be used:
- Account 48501 “Loans issued legal entities»;
- Account 48510 “Provisions for impairment of loans issued to legal entities”;
- Account 48601 “Loans issued to legal entities”;
- Account 48610 “Provisions for impairment of loans issued to legal entities”;
- Account 48701 “Microloans (including targeted microloans) issued to legal entities”;
- Account 48710 “Provisions for impairment of loans issued to legal entities”;
- Account 48801 “Microloans (including targeted microloans) issued to individuals”;
- Account 48810 “Provisions for impairment of loans issued to individuals”;
- Account 49301 “Loans issued to individual entrepreneurs”;
- Account 49310 “Provisions for impairment of loans issued to individual entrepreneurs”;
- Account 49401 “Microloans (including targeted microloans) issued to individual entrepreneurs”;
- Account 49410 “Provisions for impairment of microloans (including targeted microloans) issued to individual entrepreneurs”;
- Account 49501 “Loans issued to a second-level credit consumer cooperative”;
- Account 49510 “Provisions for impairment of loans issued to a second-level credit consumer cooperative”;
- Account 42316 “Raised funds individuals»;
- Account 43708 “Raised funds from non-state financial organizations”;
- Account 43808 “Raised funds from non-state commercial organizations”;
- Account 43908 “Raised funds from non-governmental non-profit organizations”;
- Account 50104 “Debt securities Russian Federation»;
- Account 50105 “Debt securities of constituent entities of the Russian Federation and local governments.”
5.2.4. Reporting indicators in the format established by Bank of Russia guidelines No. 3357-U, which monitor compliance with the FN8 standard, which regulates the relationship between short-term claims and short-term liabilities
To assess compliance with the FN8 standard, the following reporting indicators are used:
From the summary form “Activity Report”:
- Page 1.1.1 “Accounts receivable for loans provided to shareholders to individuals (the repayment period of which is expected within one year after the reporting date).”
- Page 1.1.2. “Accounts receivable for loans provided to shareholders to legal entities (the repayment period of which is expected within one year after the reporting date).”
- Page 1.1.3. “Receivables for loans provided credit cooperatives second level (expected to mature within one year after the reporting date).”
- Page 3.1.1.1. “Raised funds from shareholders - individuals for a period of up to one year.”
- Page 3.1.2.1. “Raised funds from shareholders - individuals for a period of up to one year.”
- Page 3.1.3. “Raised funds from persons who are not shareholders of the cooperative.”
The standard is calculated from the following ratio of indicators of the consolidated reporting form “Activity Report”:
FN8 = ∑ reporting line 1.1.1; line 1.1.2; line 1.1.3/∑ reporting line 3.1.1.1; line 3.1.2.2; line 3.1.3 * 100%
When generating reports, the cooperative can independently check compliance with the standard on the “Standards” sheet. In the event that the FN8 standard is not met in the parameters established on the relevant date transition period, in the column “Checking compliance with the FN8 standard” the “error” code will be displayed. If the ratio of short-term assets and liabilities is maintained at a normal level, the “norm” code is displayed.
Let's consider the concept, calculation formula and economic sense net assets of the company.
Net assets
Net assets (EnglishNetAssets) – reflect the real value of the enterprise’s property. Net assets are calculated by joint stock companies, limited liability companies, state enterprises and supervisory authorities. The change in net assets allows you to assess the financial condition of the enterprise, solvency and level of bankruptcy risk. The methodology for assessing net assets is regulated by legislation and serves as a tool for diagnosing the risk of bankruptcy of companies.
What is net asset value? Calculation formula
The assets include non-current and current assets, with the exception of the debt of the founders for contributions to the authorized capital and the costs of repurchasing their own shares. Liabilities include short-term and long-term liabilities excluding deferred income. The calculation formula is as follows:
NA – the value of the enterprise’s net assets;
A1 – non-current assets of the enterprise;
A2 – current assets;
ZU – debts of the founders for contributions to the authorized capital;
ZBA – costs of repurchase of own shares;
P2 – long-term liabilities
P3 – short-term liabilities;
DBP – deferred income.
Example of calculating the net asset value of a business in Excel
Let's consider an example of calculating the value of net assets for the organization OJSC Gazprom. To estimate the value of net assets, it is necessary to obtain financial statements from the official website of the company. The figure below highlights the balance sheet lines necessary to estimate the value of net assets; the data is presented for the period from the 1st quarter of 2013 to the 3rd quarter of 2014 (as a rule, the assessment of net assets is carried out annually). The formula for calculating net assets in Excel is as follows:
Net assets=C3-(C6+C9-C8)
Video lesson: “Calculation of net assets”
Net asset analysis is carried out in the following tasks:
- Assessment of the financial condition and solvency of the company (see → “ “).
- Comparison of net assets with authorized capital.
Solvency assessment
Solvency is the ability of an enterprise to pay for its obligations on time and in full. To assess solvency, firstly, a comparison of the amount of net assets with the size authorized capital and secondly, assessing the trend of change. The figure below shows the dynamics of changes in net assets by quarter.
Analysis of the dynamics of changes in net assets
Solvency and creditworthiness should be distinguished, since creditworthiness shows the ability of an enterprise to pay off its obligations using the most liquid types of assets (see →). Whereas solvency reflects the ability to repay debts both with the help of the most liquid assets and those that are slowly sold: machines, equipment, buildings, etc. As a result, this may affect the sustainability long-term development the entire enterprise as a whole.
Based on an analysis of the nature of changes in net assets, the level of financial condition is assessed. The table below shows the relationship between the trend in net assets and the level of financial health.
Comparison of net assets with authorized capital
In addition to the dynamic assessment, the amount of net assets for an OJSC is compared with the size of the authorized capital. This allows you to assess the risk of bankruptcy of the enterprise (see →). This criterion comparison is defined in the law of the Civil Code of the Russian Federation ( clause 4 art. 99 Civil Code of the Russian Federation; clause 4 art. 35 of the Law on joint stock companies ). Failure to comply with this ratio will result in liquidation judicial procedure of this enterprise. The figure below shows the ratio of net assets and authorized capital. The net assets of OJSC Gazprom exceed the authorized capital, which eliminates the risk of bankruptcy of the enterprise in court.
Net assets and net profit
Net assets are also analyzed with other economic and financial indicators of the organization. So the dynamics of growth of net assets is compared with the dynamics of changes in sales revenue and. Sales revenue is an indicator reflecting the efficiency of an enterprise's sales and production systems. Net profit is the most important indicator of the profitability of a business; it is through it that the assets of the enterprise are primarily financed. As can be seen from the figure below, net profit decreased in 2014, which in turn affected the value of net assets and financial condition.
Analysis of net asset growth rate and international credit rating
IN scientific work Zhdanova I.Yu. shows the presence of a close connection between the rate of change in the net assets of the enterprise and the value of international credit rating agencies such as Moody's, S&P and Fitch. A decrease in the economic growth rate of net assets leads to a decrease in the credit rating. This in turn leads to a decrease investment attractiveness enterprises for strategic investors.
Summary
Net asset value is an important indicator of the amount of real property of an enterprise. Analysis of the dynamics of change this indicator allows you to assess your financial condition and solvency. The amount of net assets is used in regulated regulatory documents And legislative acts to diagnose the risk of bankruptcy of companies. A decrease in the growth rate of an enterprise’s net assets leads to a decrease not only financial stability, but also the level of investment attractiveness. Subscribe to the newsletter on express methods of financial analysis of an enterprise.
Financial instruments are contractual relations between two legal entities (individuals), as a result of which one has a financial asset, and the other has financial liabilities or equity instruments associated with capital.
Contractual relations can be either bilateral or multilateral. It is important that they have clear mandatory economic consequences, from which the parties cannot evade due to current legislation. As we see, the concept financial instrument defined through other concepts such as financial assets and financial liabilities. Without knowing their essence, it is impossible to understand the characteristics of financial instruments.
Financial instruments include accounts receivable and accounts payable in traditional forms and in the form of bills, bonds, other debt securities, equity securities, as well as derivative forms, various financial options, futures and forward contracts, interest rate and currency swaps*, regardless of whether they are reflected on the balance sheet or off the balance sheet of the organization. Advances on bills of exchange and other guarantees for the fulfillment of obligations by other persons are classified as contingent financial instruments. Derivatives and contingent financial instruments involve the transfer from one party to the other of some of the financial risks associated with the underlying financial instrument, although the underlying financial instrument itself is not transferred to the issuer of the derivative financial instrument.
IAS 32 and IAS 39 also apply to contracts for the purchase and sale of non-financial assets as they are settled through cash consideration or the transfer of other financial instruments.
* Swap - purchase (sale) transaction foreign currency with its immediate transfer and with the simultaneous registration of the purchase (sale) of the same currency for a period at the rate determined at the time of the transaction.
The decisive factor determining the recognition of financial instruments is not the legal form, but the economic content of such an instrument.
Financial assets are cash or contractual rights to demand the payment of funds, or the transfer of advantageous financial instruments from another company, or the mutual exchange of financial instruments on favorable terms. Financial assets also include equity instruments of other companies. In all cases, the benefit from financial assets lies in exchanging them for money or other profitable financial instruments.
Financial assets do not include:
debt on advances issued to suppliers material assets, as well as in payment for work and services to be performed. They do not give rise to rights to receive funds and cannot be exchanged for other financial assets;
contractual rights, for example under futures contracts, the satisfaction of which is expected to be goods or services, but not financial assets;
non-contractual assets arising from legislation, such as tax debtors;
tangible and intangible assets, the possession of which does not give rise to a valid right to receive funds or other financial assets, although the emergence of the right to receive them is possible upon the sale of assets or in other similar situations.
Financial assets
Cash Contractual rights to claim money and other financial assets Contractual rights to favorable exchange financial instruments Equity instruments of other companies
The characteristics by which financial assets are classified are presented in the diagram below.
Financial assets are called monetary if the terms of the contract provide for the receipt of fixed or easily determinable amounts of money.
Refers to financial assets
Cash in cash, banks, payment cards, checks, letters of credit
Fixed assets, inventories, intangible assets
Stipulated by contracts accounts receivable for goods and services, subject to repayment in cash and other financial assets of counterparties
Bills of exchange, bonds, and other debt securities, except those for which the debt is repaid with material and intangible assets, as well as services
Shares and other equity instruments of other companies and organizations
Accounts receivable for advances issued, short-term leases, goods futures contracts
Debtors on options, to purchase equity instruments of other companies, currency swaps, warrants
Accounts receivable under loan and financed lease agreements
Financial guarantees and other contingent rights
Debtors for tax and other obligatory payments of a non-contractual nature
| Not classified as financial assets |
Financial liabilities arise from contractual relationships and require the payment of funds or the transfer of other financial assets to other companies and organizations.
Financial liabilities also include the upcoming exchange of financial instruments under an agreement with another company on potentially unfavorable terms. When classifying financial liabilities, one should keep in mind the limitations associated with the fact that liabilities that do not involve the transfer of financial assets upon their settlement are not financial instruments. On the other hand, stock options or other obligations to transfer one's own equity instruments to another company are not financial liabilities. They are accounted for as equity financial instruments.
Financial liabilities include accounts payable to suppliers and contractors, under loan and credit agreements, including debt under issued and accepted bills of exchange, placed bonds, issued guarantees, avals and other contingent obligations. Financial liabilities include the lessee's debt under a finance lease, as opposed to an operating lease, which involves the return of the leased property in kind.
Financial obligations
Contractual obligation to transfer financial assets to another entity
Contractual obligation for unfavorable exchange of financial instruments
Deferred income received for future reporting periods, guarantee obligations for goods, works, services, reserves formed to regulate costs for reporting periods are not financial liabilities, since they do not imply their exchange for cash and other financial assets. Any contractual obligations that do not involve the transfer of money or other financial assets to the other party cannot, by definition, be classified as financial liabilities. For example, obligations under commodity futures contracts must be satisfied by the delivery of specified goods or the provision of services that are not financial assets. Those that arise not in accordance with contracts and transactions or due to other circumstances cannot be considered financial obligations. For example, tax liabilities resulting from legislation are not financial liabilities.
Financial liabilities should not be confused with equity financial instruments, which do not require settlement in cash or other financial assets. For example, stock options are satisfied by transferring a number of shares to their owners. Such options are equity instruments and not financial liabilities.
An equity instrument is a contract that gives the right to a certain share of the capital of an organization, which is expressed by the value of its assets, unencumbered by liabilities. The amount of capital of an organization is always equal to the value of its assets minus the sum of all liabilities of this organization. Financial liabilities differ from equity instruments in that interest, dividends, losses and gains on financial liabilities are recorded in the profit and loss account, while income on equity instruments distributed to their owners is written off as a deduction from equity accounts. Equity instruments include ordinary shares and issuer options ordinary shares. They do not give rise to the issuer's obligation to pay money or transfer other financial assets to their owners. The payment of dividends represents the distribution of part of the assets that make up the capital of the organization; these distributions and payments are not binding on the issuer. The issuer's financial obligations arise only after the decision to pay dividends and only for the amount due for payment in cash or other financial assets. Amount of dividends not payable, for example refinanced into newly issued shares, cannot be classified as a financial liability.
Treasury shares purchased from shareholders reduce the company's equity. The deduction amount is reflected in balance sheet or in a special note to it. Any transactions with equity instruments and their results - issue, redemption, new sale, repayment - cannot be reflected in the profit and loss accounts.
Equity payments are based on transactions in which an entity receives goods and services as consideration for its equity instruments, or settlements for which cash is paid on an equity basis.
The procedure for their accounting is set out in IFRS-2 “Payments by equity instruments”, which considers this particular case taking into account IAS-32 and IAS-39.
An entity is required to recognize goods and services at their fair value when they are received, while recognizing any increase in capital. If the transaction involves cash payments in exchange for equity instruments, then the organization is obliged to recognize corresponding liabilities on their basis. If goods and services received cannot be recognized as assets, their cost is recognized as an expense. The goods and services received in such transactions are measured indirectly at the fair value of the equity instruments provided.
Payments with equity instruments are often made for the services of employees or in connection with the terms of their employment, therefore these issues are discussed in detail in § 13.7 of this textbook.
Preferred shares are classified as equity instruments only in cases where the issuer does not undertake the obligation to repurchase (redeem) them within a certain period or at the request of the owner during a certain period. Otherwise, when the issuer is obliged to transfer any financial assets, including cash, to the owner of the preferred share within a specified period, and at the same time terminate contractual relations according to these preferred shares, they are classified as financial liabilities of the issuing organization.
A minority interest in an entity's capital that appears on its consolidated balance sheet is neither a financial liability nor an equity instrument. Subsidiaries whose balance sheets are included in the consolidated balance sheet of the organization reflect in them equity instruments that are settled upon consolidation if owned by the parent company, or remain in the consolidated balance sheet if owned by other companies. Minority interest characterizes the amount of equity instruments of its subsidiaries not owned by the parent company.
The characteristics by which financial liabilities and equity instruments are classified are shown in the diagram below.
Complex financial instruments consist of two elements: financial liability and equity instrument. For example, bonds convertible into the issuer's common stock essentially consist of a financial obligation to repay the bond and an option (equity instrument) giving the holder the right to receive specified period ordinary shares that the issuer is obliged to issue. Two contractual agreements coexist in one document. These relations could have been formalized in two agreements, but they are contained in one. Therefore, the standard requires separate reflection in the balance sheet of the amounts characterizing the financial liability and separately the equity instrument, despite the fact that they arose and exist in the form of a single financial instrument. The primary classification of the elements of a complex financial instrument is maintained regardless of possible changes in future circumstances and intentions of its owners and issuers.
Refers to financial obligations
Refers to equity instruments
Accounts payable commodity transactions Bills of exchange and bonds payable with financial assets
Accounts payable for advances received for goods, works and services
Accounts payable under loan agreements and financed leases
Deferred income and warranty obligations for goods and services
Accounts payable for company shares issued and transferred to buyers
Accounts payable on bonds and bills subject to redemption at a certain time or within a certain period
Liabilities for taxes and other non-contractual payments
Obligations under forward and futures contracts to be settled by non-financial assets
Contingent obligations under guarantees and other bases, depending on any future events
Ordinary shares, options and warrants to purchase (sell) shares
Preferred shares subject to mandatory redemption
Preferred shares not subject to mandatory redemption
Refers to other obligations
Complex financial instruments can also arise from non-financial obligations. So, for example, bonds can be issued that are redeemable with non-financial assets (oil, grain, automobiles), at the same time giving the right to convert them into ordinary shares of the issuer. Issuers' balance sheets must also classify such complex instruments into liability and equity elements.
Derivatives are defined by three main characteristics. These are financial instruments: the value of which changes under the influence of interest rates.
rates, securities rates, foreign exchange rates and commodity prices, as well as as a result of fluctuations in price or credit indices, credit ratings or other underlying variables;
purchased on small terms financial investments in comparison with other financial instruments that also respond to changes in market conditions;
calculations that are expected to be made in the future. A derivative financial instrument has a conditional
an amount characterizing the quantitative content of a given instrument, for example, the amount of currency, number of shares, weight, volume or other commodity characteristic, etc. But the investor, as well as the person who issued the instrument, is not required to invest (or receive) the specified amount at the time the contract is concluded. A derivative financial instrument may contain a notional amount that is payable upon the occurrence of a specified event in the future, and the amount paid is independent of that specified in the financial instrument. The notional amount may not be indicated at all.
Typical examples of derivative financial instruments are futures, forwards, options contracts, swaps, "standard" forward contracts and so on.
An embedded derivative is an element of a complex financial instrument consisting of a derivative financial component and a host contract; cash flows, arising from each of them, vary in a similar manner, in accordance with the specified rate of interest, exchange rate or other indicators determined by market conditions.
An embedded derivative must be accounted for separately from the host financial instrument (host contract) provided that:
economic characteristics and the risks of the embedded financial instrument are not related to the same characteristics and risks of the underlying financial instrument;
a separate instrument and an embedded derivative with the same terms meet the definition of derivative financial instruments;
such a complex financial instrument is not measured at fair value and changes in value should not be recognized net profit(lesion).
Embedded derivatives include: put and call options on equity financial instruments that are not closely related to the equity instrument; options to sell or buy debt instruments at a significant discount or premium that is not closely related to the debt instrument itself; contracts for the right to extend the maturity or repayment of a debt instrument that do not have a close connection with the main contract; a contractual right embedded in a debt instrument to convert it into equity securities, etc.
Derivatives
The value of the instrument fluctuates depending on changes in market conditions Relatively small initial investment for acquisition The instrument is settled in the future At initial recognition in the balance sheet amount book value individual elements should be equal to the book value of the entire complex financial instrument, since separate reflection of the elements of complex financial instruments should not lead to the emergence of any financial results- profit or loss.
The standard provides two approaches to separately valuing the elements of liability and equity: the residual method of valuation by deducting from the carrying amount of the entire instrument the cost of one of the elements, which is easier to calculate; a direct method of valuing both elements and adjusting their values proportionately to bring the valuation of the parts to the carrying amount of the complex instrument as a whole.
The first valuation approach involves first determining the carrying amount of the financial liability for a bond convertible into equity by discounting future interest and principal payments at prevailing market prices. interest rate. The book value of an option to convert a bond into ordinary shares is determined by subtracting the calculated value from the total value of the complex instrument. discounted value obligations.
Conditions for issuing 2 thousand bonds, each of which can be converted into 250 ordinary shares at any time within three years: 1)
The par value of the bond is 1 thousand dollars per unit; 2)
total proceeds from the bond issue: 2000 x 1000 = $2,000,000; 3)
the annual rate of declared interest on bonds is 6%. Interest is paid at the end of each year; 4)
when issuing bonds, the market interest rate for bonds without an option is 9%; 5)
market price shares at the time of issue - $3; 6)
estimated dividends during the period for which the bonds are issued are $0.14 per share at the end of each year; 7)
The annual risk-free interest rate for a period of three years is 5%.
Calculation of the cost of elements using the residual method 1.
The discounted value of the principal amount of the bonds ($2,000,000) payable at the end of the three-year period, reduced to the present day ($1,544,360). 2.
The present value of the interest paid at the end of each year (2,000,000 x 6% = 120,000), discounted to date, payable over the entire three-year period ($303,755). 3.
Estimated value of the liability (1,544,360 + 303,755 = 1,848,115). 4.
Estimated value of the equity instrument - stock option ($2,000,000 - 1,848,115 = $151,885). The estimated value of the elements of a complex financial instrument to reflect them in financial statements equal to total amount proceeds received from the sale of a complex instrument.
The present present value of the liability element is calculated using a discount table using a discount rate of 9%. In the above conditions, the problem is the market interest rate for bonds without an option, that is, without the right to convert them into ordinary shares.
The present value of the payment, which must be made in n years, at the discount rate r is determined by the formula:
P = -^_, (1 + 1)n
where P is always less than one.
According to the discount table for the current (present) cost of one monetary unit for a one-time payment, we find the discount factor at an interest rate of 9% and a payment period of 3 years. It is equal to 0.772 18. Multiply the found coefficient by the entire sum of money 2 million dollars and we get the desired discounted value of the bonds at the end of the three-year period: 2,000,000 x 0.772 18 = 1,544,360 dollars.
Using the same table, we find the discount factor for the amount of interest due at the end of each year at a discount rate of 9%. At the end of the 1st year, the discount factor according to the table is 0.917 43; at the end of the 2nd year - 0.841 68; at the end of the 3rd year - 0.772 18. We already know that the annual amount of declared interest at a rate of 6% is equal to: 2,000,000 x 6% = $120,000. Therefore, at the end of the next year, the present discounted amount of interest payments will be equal to:
at the end of the 1st year - 120,000 x 0.917 43 = $110,092; at the end of the 2nd year - 120,000 x 0.841 68 = $101,001; at the end of the 3rd year - 120,000 x 0.772 18 = $92,662
Total $303,755
Cumulatively over three years, the discounted interest payments are estimated to be $303,755.
The second approach to valuing a complex financial instrument involves separately valuing the liability and stock option elements (equity instrument), but so that the sum of the valuation of both elements equals the carrying amount of the complex instrument as a whole. The calculation was carried out according to the terms of the issue of 2 thousand bonds with a built-in share option, which were taken as the basis in the first approach to valuation using the residual method.
Calculations are made using models and valuation tables to determine the value of options used in financial calculations. The necessary tables can be found in textbooks on finance and financial analysis. To use option pricing tables, it is necessary to determine the standard deviation of the proportional changes in the real value of the underlying asset, in this case the common stock into which the issued bonds are converted. The change in returns on the stock underlying the option is estimated by determining the standard deviation of the return. The higher the deviation, the greater the real value of the option. In our example, the standard deviation of annual earnings per share is assumed to be 30%. As we know from the conditions of the problem, the right to conversion expires in three years.
The standard deviation of proportional changes in the real value of shares, multiplied by the square root of the quantitative value of the option period, is equal to:
0.3 Chl/3 = 0.5196.
The second number that needs to be determined is the ratio of the fair value of the underlying asset (stock) to the present discounted value of the option's exercise price. This ratio relates the present discounted value of the stock to the price the option holder must pay to obtain the stock. The higher this amount, the higher the actual value of the call option.
According to the conditions of the problem, the market value of each share at the time of issue of bonds was equal to $3. From this value it is necessary to subtract the discounted value of dividends on shares paid in each year of the specified three years. Discounting is carried out at the risk-free interest rate, which in our problem is equal to 5%. Using the table we are already familiar with, we find the discount factors at the end of each year of the three-year period and the discounted amount of dividends per share:
at the end of the 1st year - 0.14 x 0.95238 = 0.1334; at the end of the 2nd year - 0.14 x 0.90703 = 0.1270; at the end of the 3rd year - 0.14 x 0.86384 = 0.1209;
Total $0.3813
Therefore, the current discounted value of the stock underlying the option is 3 - 0.3813 = $2.6187.
The present price per share of the option is $4, based on the fact that one thousand dollar bond can be converted into 250 shares of common stock. Discounting this value at a risk-free interest rate of 5%, we find out that at the end of the three-year period such a share can be valued at $3.4554, since the discount factor according to the table at 5% and a three-year period is 0.863 84. Discounted value of the share: 4 x 0.863 84 = $3.4554
The ratio of the actual value of the stock to the current discounted value of the option exercise price is equal to:
2,6187: 3,4554 = 0,7579.
The table for determining the price of a call option, and a conversion option is one of the forms of a call option, shows that based on the resulting two values of 0.5196 and 0.7579, the real value of the option is close to 11.05% of the real value of the shares being purchased. It is equal to 0.1105 x x 2.6187 = $0.2894 per share. One bond is converted into 250 shares. The value of the option built into the bond is 0.2894 x 250 = $72.35. The estimated value of the option as an equity instrument, calculated for the entire array of bonds sold, is 72.35 x 2000 = $144,700.
The estimated value of the liability element, obtained by direct calculation when considering the first approach to valuation, was determined in the amount of $1,848,115. If added estimated values both elements of a complex financial instrument, we obtain: 1,848,115 + 144,700 = $1,992,815, that is, $7,185 less than the proceeds received from the sale of bonds. In accordance with § 29 IAS 32, this difference is adjusted proportionally between the costs of both elements. If specific gravity the deviation in the total cost of the elements of a complex instrument is: 7185: 1,992,815 = 0.003,605 4, then the proportional share of the liability element is: 1,848,115 x 0.003,605 4 = $6663, and the element of the equity instrument (option) is 144,700 x 0.003 605 4 = $522 Therefore, in the final version, the separate measurement of both the obligation and the option should be recognized in the financial statements in the following amounts:
Commitment element cost
1,848,115 + 6663 = $1,854,778 Cost of equity instrument
144,700 + 522 = $145,222
Total cost: $2,000,000
A comparison of the calculation results in two different methodological approaches to valuation indicates that the resulting cost values differ very slightly from each other, literally by a few hundredths of a percent. Moreover, no one can say which method gives a truly reliable result. Therefore, the motive for choosing one or another approach to calculations can only be their simplicity and convenience for practical application. In this regard, the first approach is certainly more advantageous.
The calculation of net assets on the balance sheet is carried out in accordance with the requirements of Order No. 84n dated August 28, 2014. The procedure must be applied by JSCs, LLCs, municipal/state unitary enterprises, cooperatives (industrial and housing) and business partnerships. Let us consider in detail what the term net assets means, what significance this indicator has for assessing the financial condition of a company and what algorithm is used to calculate it.
What determines the size of net assets on the balance sheet
Net assets (NA) include those funds that will remain in the ownership of the enterprise after the repayment of all current liabilities. Defined as the difference between the value of assets (inventory, intangible assets, cash and investments, etc.) and debts (to contractors, personnel, budget and off-budget funds, banks, etc.) with the necessary adjustments.
The calculation of the value of net assets on the balance sheet is carried out based on the results of the reporting period (calendar year) in order to obtain reliable information about the financial condition of the company, analyze and plan further operating principles, pay dividends received or actually evaluate the business in connection with a partial/full sale.
When determination of net assets is required:
- When filling out annual reports.
- When a participant leaves the company.
- At the request of interested parties - creditors, investors, owners.
- In case of increasing the amount of the authorized capital due to property contributions.
- When issuing dividends.
Conclusion - NAV is the net assets of the company formed due to equity and not burdened with any obligations.
Net assets - formula
To determine the indicator, the calculation includes assets, except for the receivables of the participants/founders of the organization, and liabilities from the liabilities section, with the exception of those deferred income that arose due to the receipt of government assistance or donated property.
General calculation formula:
NA = (Non-current assets + Current assets – Debt of the founders – Debt of shareholders in connection with the repurchase of shares) – (Long-term liabilities + Short-term liabilities – Income attributable to future periods)
NA = (line 1600 – ZU) – (line 1400 + line 1500 – DBP)
Note! The value of net assets (the formula for the balance sheet is given above) requires, when calculating, to exclude objects accepted for off-balance sheet accounting in the secondary storage accounts, BSO, reserve funds and etc.
Net assets - calculation formula for the 2016 balance sheet
The calculation must be drawn up in an understandable form using a self-developed form, which is approved by the manager. It is allowed to use the previously valid document for determining the NA (Order No. 10n of the Ministry of Finance). This form contains all required lines to be filled out.
How to calculate net assets on a balance sheet - shortened formula
The value of net assets on the balance sheet - the 2016 formula can be determined by another, new method, which is contained in Order No. 84n:
NA = Capital/reserves (line 1300) + DBP (line 1530) – Debts of the founders
Analysis and control
The size of Net Assets (NA) is one of the main economic and investment indicators of the performance of any enterprise. Success, stability and reliability of business is characterized by positive values. A negative value shows the unprofitability of the company, possible insolvency in the near future, and probable risks of bankruptcy.
Based on the results of settlement actions, the value of net assets is estimated over time, which should not be less than the amount of the authorized capital (AC) of the company. If the reduction does occur, according to the legislation of the Russian Federation, the enterprise is obliged to reduce its capital and officially register the changes made in Unified register(Law No. 14-FZ, Article 20, paragraph 3). The exception is newly created organizations operating for the first year. If the size of net assets is less than the size of the capital, the enterprise may be forcibly liquidated by decision of the Federal Tax Service.
Additionally, there is a relationship between the value of the NAV and the payment of required dividends to participants/shareholders. If, after accrual of income/dividends, the value of net assets decreases to a critical level, it is necessary to reduce the amount of accruals to the founders or completely cancel the operation until the normatively designated ratios are achieved. You can increase the NAV by revaluing the property resources of the enterprise (PBU 6/01), receiving property assistance from the founders of the company, taking an inventory of obligations in terms of terms limitation period and other practical methods.
Net asset value on balance sheet – line
IN financial statements organization contains all the indicators required for mathematical calculations, expressed in monetary terms. In this case, data is taken at the end of the reporting period. When it is necessary to determine the value for another date, interim reports should be prepared at the end of the quarter/month or half-year.
Attention! The amount of net assets is also displayed on page 3600 Form 3 (Report on changes in capital). If a negative value is obtained, the indicator is enclosed in parentheses.