“The increasing trend in equity ratio remains constant among Austrian companies, especially SMEs,” according to Boris Recsey, Manager of CRIF Austria. “The reason being that a solid equity ratio is an important risk buffer for difficult times and good preparation for the current economic challenges. A higher equity ratio lowers the risk of insolvency.”
Detailed Results of the Analysis
Austria-wide growth in equity ratio. In the context of the analysis, CRIF looked at all the balance sheets submitted up to the end of 2014, including all the reports from 2011 to 2013, of around 90,000 Austrian companies of different sizes (large enterprises and SMEs). For this period of analysis, growth in the equity ratio was seen for companies in almost every federal state.
Fig. 1: Median equity ratio by federal state from 2011 to 2013
Vorarlberg on top
Looking at the median equity ratio beyond company size, Voralberg constantly occupies the top of the ranking, followed by Tyrol, Upper Austria, Salzburg, Vienna, Lower Austria, Carinthia and Styria. Although Burgenland also shows a yearly growth in equity ratio, it remains at the bottom of Austria’s economic scale. “Along with businesspeople, Burgenland’s politicians are also aiming to invest more in the improvement of the region’s business and to create incentives for long-term sustainable economic development.”
Exceptionally good capital backing in SMEs
“Small and medium enterprises are particularly interested in keeping their good equity ratio. This shows the solid economic position of SMEs in Austria,” according to Recsey. In 2013, 54.70% of the total number of 90,856 SMEs had a good equity ratio of more than 30%, 25.66% had an equity ratio of less than 30%, and 19.64% had a negative equity ratio (= heavily indebted). To sum up, this means that over 80% of SMEs had a positive equity ratio in 2013.
Financial and insurance service sector has the highest equity ratio (ER over 80%)
Among the enterprises with an equity ratio > 80%, insurance, freelance and financial services as well as real estate and rental businesses have the best capital backing. While nearly 32% of financial and insurance service providers achieved an ER of over 80% in 2013, approximately 30% of corporate enterprises providing freelance services also accomplished this. 20% of enterprises in the real estate and rental sector also showed an ER of over 80%.
“High ER also allows conclusions to be drawn about business operation and conduct. There are a lot of top performers among Austrian SMEs able to generate high profit and reinvest it. By proceeding in this way, they can ensure their independence from external capital providers on the one hand, and their good position in an even more dynamic and competitive environment – we are always glad to provide information on such enterprises in particular,” concluded Recsey.
Definition of ER
ER (Equity Ratio) is a financial ratio indicating the relative proportion of equity used to finance a company's assets. Equity serves as a buffer for risks that will occur in form of losses. Therefore, a higher ER lowers the risk of insolvency as the company holds more capital to cover future losses.
