Category: Company Rating Analysis

If the National Social Security were a private company... The INPS SRL case

You have to know in fact that in many countries around the world, including Italy, equity is a measure of protection of the creditors of private companies, that if it goes down below the minimum legal level and the company that does not provide its recapitalization, it should stop the activity. Now, even knowing that the comparison is unnatural, that there are many limitations in what I have to say, knowing that I have to make some (venial) methodological sins, I wanted to answer the question: “But if the National Social Security Institute (INPS) was a private company, which rating I would assign to it? ” Here is the INPS SRL case;

Let’s go a few steps back: in October, I wrote an article on the importance of the analysis of the solvency of a company in which I emphasized the primary role of equity. The Equity expands with revenues set aside by the company or decreases with the losses. Each company is evaluated primarily for its solvency or the relationship between Equity and Liabilities and for its profitability or the ability to make positive margins and to increase the equity.

INPS published its very articulate financial statements in which, however, there is always a simplification of the data how typically private companies show their data in Balance Sheet and Income Statement. If we imagine ourselves evaluating the institution as if it were a private company, obtaining the audited financial statements and budget estimates , the most important data, we would have the following situation:

Key Financials

Key Financials

The situation is already self-evident: if this continues, the INPS SRL would be insolvent by the end of the year. But if we calculate two indexes on the cross, we realize that the situation was already serious in 2012:

From the table we see that in fact:

  • The ratio (Total Liabilities) / (Equity), also called Leverage, rises to a value of more than 6. Do you know how many companies in Italy have a higher leverage than 6? Only 30%! Do you know how much higher than 20? Just over 10%! Do you know how many of these have a high probability of default? Almost all of them!
  • ROE is defined as (Loss) / (Equity) equal to -56%. Do you know how many companies do worse in Italy? Less than 10%. This is despite the INPS SRL has an incidence of taxation that 100% of the Italian companies would want!
  • We need to continue? How many Italian companies have a ROI of less than 8%? Less than 5%!

All right, I will not persecute, we also know we played that in fact INPS is not an SRL. In addition, there is a sole member who “guarantees” and covers the holes of INPS: the State! But we know the problems of the Italian state financial accounts!

One very last gem: I wondered how much the weight of pensions in Italy was and especially as compared to the rest of Europe. The latest statistics currently available provide us the Eurostat data but they “stop” in 2011. Want to see them? It turns out that in Italy the pension burden is the highest in Europe! Check it out the top 5:

Weight of Pensions in EU

Weight of Pensions in EU

The ‘Pensions’ aggregate comprises part of periodic cash benefits under the disability, old-age, survivors and unemployment functions. It is defined as the sum of the following social benefits: disability pension, early-retirement due to reduced capacity to work, old-age pension, anticipated old-age pension, partial pension, survivors’ pension, early-retirement benefit for labor market reasons.

So the situation of INPS, maybe is not dramatic, it is absolutely important to be tackled with the utmost care. And surely, the new government already knows it.

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