The financial stability of Russian companies rests on private traders

Analysts from the National Rating Agency (NRA) have published updated assessments of the financial stability of large Russian businesses “in the context of the new economic and geopolitical reality.” These estimates are made on the basis of an integral metric of financial stability, calculated according to the methodology of the American financier Edward Altman based on the reporting of 4151 companies in the SPARK Interfax system.

In 2022, the integral financial stability indicator decreased to 3.1 from 3.2 points in 2021. “We attribute this to the fact that the transition to a “structural crisis” occurred from a state of high income in 2021,” explain the authors of the calculations, adding that “massive government support in the second and third quarters of 2022 served as a damper preventing the deterioration” of the companies’ position. As a result, about 78% of companies remained in the zone of high financial stability, 20% of companies moved to the gray zone, and only 2% of companies that were in the financial stability zone in 2021 moved to the “financial stress” zone. Private companies and companies with foreign or mixed ownership in 2022 practically maintained the level of financial stability at the level of 2021, while companies with state or municipal ownership reduced their financial stability (see chart).

Air transportation lost the most in terms of stability, while the chemical industry, paper producers, oil and natural gas production gained the most. Financial stability has deteriorated in wood processing and forestry, telecoms, healthcare and IT. A difficult situation is observed in the processing of secondary raw materials and the production of coke and petroleum products. The picture of deteriorating financial stability in these industries can be characterized as follows: revenue growth is below inflation; a drop in operating profit by almost half; significant reduction in asset margins; increased vulnerability due to increased debt burden; negative situation with working capital turnover and liquidity, the NRA notes. In the fourth quarter of 2023 and in 2024, the authors expect a moderate improvement in the financial stability of companies due to increased margins and asset turnover amid economic recovery and the ongoing restructuring of supply chains.

Artem Chugunov