Companies suffer from a drop in cash generation and expenses – 07/11/2023 – Market

A survey shows that the main Brazilian companies are experiencing an adverse environment. Financial expenses with taking out credit, such as working capital for the business to maintain itself, grew strongly, while cash generation, which measures the ability to put money into the business, has been falling since the end of last year.

An X-ray of this problem was released this Tuesday (11) in the technical note “Risks of a credit crisis and the financial situation of public companies (II)” produced by Cemec-Fipe (Center for Capital Market Studies of Economic Research Institute Foundation). The study considers the financial statements of more than 400 companies listed on the Brazilian stock exchange.

Among the indicators evaluated is the relationship between the cost of financial expenses and cash generation measured by Ebitda, an acronym in English for earnings before discounts with taxes, interest, amortization and depreciation.

“If this ratio is below 1, it means that the company does not generate enough resources to pay its obligations. If it is 1, it is a tie”, explains Carlos Antonio Rocca, Cemec-Fipe coordinator. the end of 2021.”

According to the survey, this ratio reached 3.3 in the third quarter of that year and closed the first quarter of this year at 1.8.

The annual rate of change in financial expenses, which represents the cost of credit, reached 68.9% last year and stood at 36.4% in the first quarter of this year. According to Rocca, it will not fall until the Central Bank reduces the basic interest rate.

The Ebitda rate of change, however, which measures the performance of companies, has been falling since the end of 2021 and has entered negative territory since the end of last year. In 2021, the indicator reached the mark of 46.6%. It closed the first quarter of this year at -7.1%.

Rocca says that, because of the bankruptcy of Americanas, he focused particularly on trading companies. As a whole, their Ebitda/Financial expense indicator was 1.44.

Of the total companies, the analysis showed that 13% had an indicator below 1, that is, they did not generate enough cash to cover financial expenses.

Even though the economy has shown good signs in recent months and the approval of the fiscal framework has improved the economic outlook, Rocca estimates that the situation is still fragile, and a greater number of companies tend to register worse indicators.

“It’s hard to immediately reverse something like that,” says Rocca. “The tendency is for this situation to deteriorate before there is an improvement. Even if the Central Bank starts to reduce the basic interest rate in August, as expected, the practical effect will take time.”

According to Rocca, looking back, a combination of factors led to this adverse environment. At the end of 2020, with the sharp drop in the basic interest rate and government incentives to combat the economic impact of the pandemic, companies were able to negotiate debts and contract new credits. Then, throughout 2021, there was a strong recovery in the economy. It was the best year of the decade for public companies.

This picture changed from 2021. Interest rates started to rise and the economy started to give way.

“At the same time, there was an increase in interest rates and a reduction in the supply of credit”, says Rocca.

The average interest rate on bank credit, for example, which was 11.6% in December 2020, dropped to 23.8% in March of this year.

The TPB (Brazilian Preferred Rate), a kind of premium rate that banks offer to top-tier companies with low risk, went from 8.2% to 15.8% in the same period.

At the beginning of this year, Americanas’ financial difficulties, which hit the main banks, also generated distrust in the financial system, which led to a retraction in the supply of resources and made it difficult to roll over debts throughout the system.

Comparing the first quarter of this year with last year, there was a retraction corresponding to 2% of GDP (Bruno Domestic Product) in the total supply of bank credit.

“The problem is still there,” says Rocca. According to him, the data reinforce the need for debt renegotiation or restructuring, in a scenario that may lead to a continued increase in defaults.

“The market estimates that at this moment companies are trying to restructure around R$ 100 billion in debt.”