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Introduction
Chapter 1. Theoretical foundations of the investment attractiveness of an enterprise
1.1 The essence and concept of the investment attractiveness of an enterprise
1.2 Factors influencing the investment attractiveness of an enterprise
1.3 Methods for assessing investment attractiveness
Chapter 2. Analysis of financial directions of investment attractiveness of JSC “VMZ “Red October”
2.1 General characteristics of the financial condition of the enterprise
2.2 Analysis of the attractiveness of an enterprise based on an assessment of financial indicators
2.3 Comprehensive assessment of ways to increase the investment attractiveness of JSC VMZ Krasny Oktyabr
Conclusion
Application
List of used literature
INTRODUCTION
The success, performance, and long-term viability of any enterprise depend on a continuous sequence of sound management decisions. Each of these decisions ultimately has economic consequences on the activities of the enterprise. In essence, the process of managing any enterprise is a series of economic decisions.
Some decisions are major, such as investing in new equipment, borrowing large sums, or producing new products. Most other decisions are part of the daily management process across all departments of the enterprise. Common to all decisions is the basic principle of “economic compromise,” according to which, before each decision, the manager must weigh the benefits and costs obtained.
One of the most important areas of activity of any enterprise is investment operations, i.e. operations related to the investment of funds in the implementation of projects that will ensure that the company receives benefits over a sufficiently long period of time.
Entrepreneurial activity is the manufacture of products or the provision of services aimed at making a profit. To achieve more efficient business conditions, it is necessary to constantly implement new projects and ideas.
A correct assessment of the investment attractiveness of an enterprise allows the enterprise to receive stable income and make informed decisions.
The economic assessment of any investment project must necessarily take into account the peculiarities of the functioning of the market, in particular the mobility of many parameters characterizing the project, the uncertainty of achieving the final result, the subjectivity of the interests of various project participants and, as a consequence, the multiplicity of criteria for its evaluation.
The purpose of the course work: to study ways to increase the investment attractiveness of an enterprise.
Coursework objectives:
Consider the concept of investment attractiveness of an enterprise
Study the features of assessing the financial attractiveness of an enterprise
Explore financial directions for increasing the investment attractiveness of an enterprise
Conduct a comprehensive assessment of the investment attractiveness of an enterprise using the example of JSC VMZ Krasny Oktyabr.
The subject of the course work is the financial side of the enterprise and ways to increase investment attractiveness.
The empirical basis for the study was data from enterprises, articles and Internet resources.
CHAPTER 1. THEORETICAL FOUNDATIONS OF INVESTMENT ATTRACTIVENESS OF AN ENTERPRISE
1.1 ESSENCE AND CONCEPT OF INVESTMENT ATTRACTIVENESS OF AN ENTERPRISE
Investment activity - investing funds (investing) and carrying out practical actions with the aim of generating income or achieving another useful effect - to one degree or another is inherent in any enterprise.
With a large selection of types of investments, an enterprise is constantly faced with the task of choosing an investment solution. Making an investment decision is impossible without taking into account the following factors: type of investment, cost of the investment project, multiplicity of available projects, limited financial resources available for investment, risk associated with making a particular decision, etc.
To determine the maximum efficiency of an investment decision, the concept of the investment attractiveness of an enterprise is used.
Most often, the term “investment attractiveness” is used to assess the feasibility of investing in a particular object, select alternative options and determine the efficiency of resource allocation, i.e. The investment attractiveness of an enterprise is the feasibility of investing temporarily free funds in it.
Thus, investment attractiveness is characterized by the state of the enterprise, its further development, prospects for profitability and growth.
The main source of information for determining the investment attractiveness of an enterprise is its accounting (financial) statements for the last two calendar years and the last reporting period.
The investment attractiveness of the enterprise includes:
Ш General characteristics of the technical base of the enterprise - the nature of the technology; availability of modern equipment, warehouse facilities, and own transport; geographical location, proximity to transport communications.
Ш Characteristics of the technical base of the enterprise - the state of technology, the cost of fixed assets, the coefficient of physical and moral wear and tear of fixed assets.
Ш Range of products that are produced.
Ш Production capacity is the maximum possible output per unit of time. Production capacity characterizes the operation of fixed assets in such conditions under which it is possible to fully use the potential capabilities inherent in the means of labor.
Ш The place of the enterprise in the industry, in the market, the level of its monopoly.
Ш Characteristics of the management system (organizational structure of the enterprise). Large enterprises specializing in the production of complex, labor-intensive types of products usually consist of dozens of workshops, laboratories, and departments. To coordinate their activities, a hierarchical management structure is created.
1.2 FACTORS AFFECTING THE INVESTMENT ATTRACTIVENESS OF THE ENTERPRISE
The investment attractiveness of an enterprise depends on many factors, among which the following can be noted: financial position, risk, efficiency of production development, dividend policy, information on activities, etc.
All factors influencing the investment attractiveness of an enterprise can be divided into two groups: external and internal. They form systems of external and internal risks of an investment project, which are of particular importance for solving this problem. Let's consider the main factors that should be taken into account when assessing the investment attractiveness of an enterprise:
Industry affiliation. It is well known that the competitiveness of products on the market largely depends on the reputation of the relevant industry and country in the world market. When competing with an enterprise in an industry that successfully operates in the market, an advantage is provided by the fact that, as a rule, the enterprise itself is associated with all enterprises in the country that are part of this industry.
Owners of the enterprise. The nature of ownership, that is, who owns the controlling interest and large blocks of shares, is essential not only for the current activities of the enterprise, but also for its successful development. Depending on the nature of ownership, an enterprise management system should be built.
Production potential. The state of an enterprise's production potential has a direct impact on its investment attractiveness, but is practically not taken into account by investors and creditors. It is more common to assess the financial condition or talk about the existing capital of an enterprise and the effectiveness of its management. But it should be borne in mind that in fact capital works only after the transition to the production form, becoming the structure of production potential. Thus, capital turns into fixed assets, working capital and intangible assets.
Enterprise management. When analyzing management, the macro-level of enterprise management is studied, from the quality of the development of documents related to management and the presence of strategic management, to how perfect the enterprise's tax planning system is.
Location. In Russian conditions, this factor can be decisive in the investment attractiveness of an enterprise. Relations with authorities. The investor needs to find out what kind of relationship has developed with the local authorities. Will the government contribute to the success of the project or erect obstacles to its implementation?
Investment program. The lender and investor need to familiarize themselves with the documents not only for the investment project being financed or financed, but also for the entire set of investment projects of the enterprise. Analysis of such a program is not an easy and delicate matter; in each specific situation it should be carried out taking into account the actually existing conditions and interests of the parties - participants in the investment project.
1.3 METHODS FOR ASSESSING INVESTMENT ATTRACTIVENESS
Based on world practice, the assessment of the investment attractiveness of an enterprise is carried out if the necessary data is available, such as:
1) cash flow
2) balance sheets
3) profit and loss statement
For all Russian enterprises, the main indicator of investment is the payback period and capital productivity. As for the stages that are used in the process of making investment decisions, at the moment there are three main ones:
1) size of investment and identification of sources of financing
2) assessment of expected cash flows from the implementation of the investment project
3) assessment of the financial condition of the enterprise and the chances of its participation in investment activities
The financial condition of an enterprise is a concept and its characteristics that are based on an assessment of the efficiency of allocation of funds, the presence of the necessary financial base, the organization of payments and the stability of solvency.
Various methods are very widespread, created to assess the financial position of an enterprise, which are based on the analysis of a system of financial ratios. With all their diversity, they should include indicators of the following areas for assessing the financial condition of the enterprise:
Liquidity indicators
Financial stability indicators
Business activity indicators
Profitability indicators
ь The liquidity of an enterprise is its ability to quickly sell assets and obtain money to pay its obligations.
1. The current liquidity ratio (coverage ratio) shows how many units of current assets of an enterprise fall on one unit of current liabilities. This indicator is of particular importance for the evaluation of the enterprise by buyers and investors. The standard value of the coverage coefficient is 1.
where current assets are cash and short-term financial investments, accounts receivable and other current assets, inventories and long-term financial investments; current liabilities are accounts payable and short-term loans and borrowings
2. The instant (quick) liquidity ratio determines that part of the obligations that can be repaid not only from cash, but also from expected receipts for shipped products (work performed, services provided). The standard value of this indicator is 0.6 - 0.8.
3. The absolute (total) liquidity ratio shows what part of current liabilities can be repaid with assets that have absolute liquidity. Standard value: 1?CAL?2.
4. The ratio of short-term receivables to payables characterizes the enterprise’s ability to pay creditors at the expense of debtors within 1 year. The recommended value is 1.
ь Financial stability characterizes the degree of financial independence of an enterprise regarding the ownership of its property and its use. The degree of independence can be assessed according to different criteria:
1. level of coverage of working capital (inventories) with stable sources of financing
2. solvency of the enterprise
3. share of own or stable sources in total sources of financing
Solvency is the ability of an enterprise to cover its short-term obligations through cash and accounts receivable.
where, A1 - the most liquid assets: cash and short-term financial investments
A2 - quickly realizable assets: accounts receivable and other current assets
P1 - the most urgent obligations: accounts payable
P2 - short-term liabilities: short-term loans and borrowings
If this condition is met, the enterprise is considered solvent.
Financial stability is the degree to which reserves and costs are covered by the sources of their formation. To characterize the degree of financial stability, you can use a three-component vector of financial stability:
If the coordinate value is positive, then it is assigned the value 1, if negative - 0.
Analysis of financial stability according to the criterion of the degree to which reserves are covered by stable sources of financing, as well as according to the criterion of the solvency indicator, makes it possible to obtain a complete picture of the current and expected level of financial stability.
ь Analysis of the business activity of an enterprise allows one to assess the effectiveness of the main activity of the enterprise, which is characterized by the rate of turnover of the enterprise’s financial resources.
The following indicators are used to analyze business activity:
The turnover ratio of current assets determines how much revenue falls on a unit of working capital or the number of turnover per year:
The inventory turnover ratio characterizes the number of turnovers of funds invested in inventories:
The accounts receivable turnover ratio shows how many times revenue exceeds accounts receivable:
At this stage, the turnover period of current assets is also calculated (in days), which characterizes the time from the expenditure of funds for the production of products to the receipt of money for its sale:
where N is the time period for which the analysis is carried out (in days)
An increase in the turnover of current assets and a reduction in the period of their turnover indicates an increase in the efficiency of using current assets.
b Profitability is a relative indicator of profit, which reflects the relationship of the effect obtained (income, profit) with cash or resources used.
Return on assets (capital) is calculated as the ratio of profit to the average annual value of the enterprise’s assets:
where is the net profit from product sales
Average annual value of assets (balance sheet currency)
Return on assets shows the amount of net profit that falls per unit of assets; the standard value is greater than 0.
In assessing the investment attractiveness of an enterprise, the effectiveness of investments is assessed.
The effectiveness of investments is determined using a system of methods that reflect the ratio of investment-related costs and results.
The set of methods used to evaluate the effectiveness of investments can be divided into two groups: dynamic (taking into account the time factor) and static (accounting).
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Rice. 1. Classification of investment analysis methods
The most important of the static methods is the “payback period,” which shows the liquidity of a given project. The disadvantage of static methods is the lack of consideration of the time factor.
Dynamic methods are often called discount methods, since they are based on determining the current value (i.e., discounting) of cash flows associated with the implementation of an investment project.
Static methods
b Term return on investment (PP) is one of the simplest and most widespread methods in world practice; it does not imply a temporal ordering of cash receipts.
The general formula for calculating the PP indicator is:
The PP method is successfully used to quickly reject projects, as well as in conditions of strong inflation, political instability or a shortage of liquid funds: these circumstances guide the enterprise towards obtaining maximum income in the shortest possible time.
b Simple rate of return (ARR) method
The essence of the method: the average net accounting profit over the life of the project is compared with the average investments (costs of fixed and working capital) in the project.
Dynamic Methods
b The net present value (NPV) method is based on comparing the value of the original investment (IC) with the total discounted net cash flows it generates over the forecast period. Since the cash inflow is distributed over time, it is discounted using a factor r, set by the investor independently based on the annual percentage return that he wants or can have on the capital he invests.
Suppose a forecast is made that an investment (IC) will generate, over n years, annual income in the amount of P1, P2, ..., Pn. The total accumulated value of discounted income (PV) and net present value (NPV) are respectively calculated using the formulas:
If: NPV>0 - the project should be accepted, NPV<0 - проект следует отвергнуть,
NPV = 0 - the project is neither profitable nor unprofitable.
ь Internal rate of return method
Internal return (IRR) is understood as the value of the discount factor at which the NPV of the project is equal to 0:
The meaning of calculating this coefficient when analyzing the effectiveness of planned investments is as follows: IRR shows the maximum permissible relative level of expenses that can be associated with a given project.
If: IRR>CC - the project should be accepted, IRR b Method of discounted payback period of investment The discounted payback period is the number of periods (years) during which the investment will be repaid. This criterion characterizes the liquidity and indirect risk of the project. DPP eliminates the disadvantage of the static payback period method and takes into account the time value of money, and the corresponding formula for calculating DPP is: The shorter the payback period, the more effective the project is. In practice, the DPP value is compared with some specified time period n. If DDP?n, then the project is accepted, otherwise it should be rejected. b Profitability index This method is essentially a corollary of the net present value method. The profitability index (PI) is calculated using the formula: If PI>1 - the project should be accepted, PI<1 - отвергнуть, PI=1 - проект ни прибыльный, ни убыточный. The indicator of investment attractiveness of an investment object is calculated using the formula: where S i is an indicator of investment attractiveness (cost) of the i-th object F i - resources of the i-th object participating in the competition N is the value of the consumer order. A consumer order is considered as a hypothetical readiness of a future investor to invest available funds in commodity property. Thus, in many methods for assessing the investment attractiveness of an enterprise, one of the main factors in assessing and predicting the future state of the analyzed organization is the assessment of its management system. But none of them fully covers the possible field of factors influencing investment attractiveness, determined on the basis of the theoretical model of the company chosen for the purposes of this study. 2 ANALYSIS OF FINANCIAL DIRECTIONS OF INVESTMENT ATTRACTIVENESS OF CJSC VSW RED OCTOBER 2.1 GENERAL CHARACTERISTICS OF THE FINANCIAL CONDITION OF THE ENTERPRISE investment attractiveness financial profitability CJSC VMZ Krasny Oktyabr uses the latest technologies for steel smelting and the production of rolled metal of various profiles. Therefore, the quality and availability of the company’s products compares favorably with manufacturers in a similar field of activity. CJSC VMZ Krasny Oktyabr places very high demands on the qualifications of its personnel and takes into account their work experience in the production and technical field. All employees are competent PC users. Posted on http://www.allbest.ru/ Rice. 2. Dynamics of revenue from sales of JSC “VMZ “Red October” Revenue from sales of the enterprise in the period from 2006 to 2008 tended to decrease. Posted on http://www.allbest.ru/ Rice. 3. Dynamics of the cost of services and profit from sales of JSC “VMZ “Red October” The cost of the enterprise increased methodically during the period under review. The same trend applies to profits. Figure 2 clearly shows that the profit from sales is significantly lower than the cost of the services provided by the enterprise. 2.2 ANALYSIS OF THE ATTRACTIVENESS OF THE ENTERPRISE BASED ON THE ASSESSMENT OF FINANCIAL INDICATORS The balance sheet of CJSC “VMZ “Red October” as of 01/01/2008 is as follows. [cm. application] The book value is: assets - (long-term liabilities + short-term liabilities) = =16273-15029=1244 thousand rubles. The value of the enterprise's net assets is 1244 thousand rubles. In general, positive preliminary conclusions can be drawn about the financial condition of the enterprise. The financial indicators of the enterprise are shown in table 2.1. Table 2.1 Analysis of the financial condition of JSC “VMZ “Red October” Indicator name at the beginning of 2007 at the beginning of 2008 Liquidity ratios Current ratio Quick ratio Absolute liquidity ratio Turnover ratios Coeff. accounts receivable turnover (RE) Repayment period of loan, in days Inventory turnover ratio Inventory turnover, in days Net working capital Balance sheet structure coefficients Debt capital concentration ratio Autonomy coefficient Profitability ratios Return on equity Product profitability Return on assets Bankruptcy probability assessment Altman Z-score Explanations for calculations: KTL - current ratio OA - current assets KO - short-term liabilities at the beginning of 2007: 13540/14405 = 0.94 at the beginning of 2008: 14000/15029=0.93 K BL - quick liquidity ratio DS - cash KFV - short-term financial investments DZ - accounts receivable at the beginning of 2007: (169+580+4869)/14405=0.39 at the beginning of 2008: (134+469+3416)/15029=0.27 at the beginning of 2007: 144/14405=0.01 at the beginning of 2008: 134/15029=0.01 Accounts receivable turnover ratio B - sales revenue DZ - accounts receivable balances at the beginning of 2007: 1780/(680+4794)=0.33 at the beginning of 2008: 1978/(469+3416)=0.51 P DZ - period of repayment of receivables N - number of days in the period at the beginning of 2007: 360/0.33=1091 days at the beginning of 2008: 360/0.51=707 days Inventory turnover ratio Z - remaining inventory at the beginning of 2007: 1780/9760=0.18 at the beginning of 2008: 1978/9889=0.19 Inventory turnover in days N - number of days at the beginning of 2007: 360/0.18=2000 days at the beginning of 2008: 360/0.19=1895 days N OK - net working capital OK - working capital at the beginning of 2007: 15463-14405 = 1058 thousand rubles. at the beginning of 2008: 14000-15029=-1029 thousand rubles. Debt capital concentration ratio ZK - borrowed capital VB - balance currency at the beginning of 2007: 14405/16100 = 0.89 at the beginning of 2008: 15029/16273=0.92 K AVT - autonomy coefficient SK - equity capital A - assets at the beginning of 2007: 1695/16100=0.11 at the beginning of 2008: 1244/16273=0.07 R SK - return on equity PE - net profit at the beginning of 2007: 188/1695=0.11 at the beginning of 2008: 201/1244=0.16 PRODUCT R - product profitability P SALES - profit from sales (provision of services) at the beginning of 2007: 111/1780=0.06 at the beginning of 2008: 138/1978=0.07 R A - return on assets at the beginning of 2007: 188/16100=0.01 at the beginning of 2008: 201/16273=0.01 13) Altman model: X1 - working capital/amount of assets X2 - retained earnings/amount of assets X3 - operating profit/total assets X4 - market value of shares/debt X5 - revenue/total assets at the beginning of 2007: at the beginning of 2008: In accordance with the calculations performed, we note the following: The value of the current liquidity ratio for the entire period of analysis was less than 1. Since this ratio shows how many rubles of the company’s current assets are per 1 ruble of current liabilities, we can say that the company’s current liabilities are not secured by its current assets. The industry average coefficient for similar enterprises ranges from 0.69 to 1.95. Accounts payable includes advances on budget issues, for which the actual volumes of work performed to date exceed the amounts advanced, so this figure is somewhat underestimated. Indicators of asset turnover (business activity). According to the calculations: A low value of the accounts receivable turnover ratio indicates that funds are tied up in debt and limits the short-term liquidity of the enterprise. The value of this indicator is less than 1, while the approximate standard value is 8. The repayment period for receivables is about 3 years at the beginning of 2007, and about 2 years at the beginning of 2008 - is unsatisfactory. A low inventory turnover ratio for an enterprise indicates the presence of obsolete inventory. A high value of inventory turnover in days indicates that a large amount of inventory has accumulated in the company's warehouses. This may be explained by the use of the custom accounting method, due to the long-term nature of contracts with consumers. The appearance of a negative net working capital indicator at the beginning of 2008 characterizes the inability to cover current liabilities with current assets and an acute shortage of working capital. Balance sheet structure indicators The concentration ratio of an enterprise's debt capital shows its dependence on the funds raised. The percentage of the enterprise's own funds, which is characterized by the autonomy coefficient, is extremely low. The lack of own funds leads to real risks of failure to fulfill obligations to creditors, suppliers and other persons. A significant excess of accounts payable (less advances) over accounts receivable worsens the financial condition. Profitability indicators The profitability of the enterprise's products does not exceed 10% for the entire period under review, which shows the share of profit from sales in each ruble of turnover. This indicator characterizes the efficiency of not only economic activity, but also pricing. Return on equity for the period under review is low, which is due to the predominance of borrowed capital in the balance sheet structure. Indicators of bankruptcy probability. To assess the probability of bankruptcy of an enterprise, the Altman Z-score was used. The enterprise has a value of this indicator throughout the entire period under review in the amount of 1.28-1.18. Based on statistical data, if this indicator is less than 1.8, the company has a very high probability of bankruptcy. Based on the results of the express analysis of the financial condition of the enterprise, the following conclusions can be drawn. At the beginning of 2007, the company does not have the ability to pay its current obligations from current assets, which is a negative factor characterizing its instability in the market. The company urgently needs to take measures to collect debts, as well as increase the turnover period of current assets, since tying up money in inventories and accounts receivable has a negative impact on business activities. The enterprise has an unacceptable capital structure due to the overwhelming predominance of borrowed capital. The lack of sufficient equity can lead to the threat of liquidation in the event of claims from counterparties, especially since, based on the results of calculations, the company has a very high probability of bankruptcy. The profitability of the enterprise's products during the period under review was at a low level, which may be a consequence of incorrect pricing policy; the presence of a loss according to the balance sheet data can lead to negative consequences up to and including liquidation in accordance with the legislation of the Russian Federation. Despite the fact that the analysis of the enterprise’s reporting forms revealed a number of alarming financial indicators due to the reasons described above, there are prerequisites for their improvement. Planned stable profit growth rates in 2008-2010. due to the following factors: 1) The interest of the state represented by the relevant ministries and departments in the successful operation of the enterprise. 2) Conducting a revaluation of fixed assets and receiving income from other operations, including the sale of excess assets. 3) Receiving income from non-operating operations (mainly through leasing unused non-residential premises on the territory of the enterprise for offices, commercial use and other purposes). 4) Carrying out an inventory of intangible assets and putting them on the balance sheet with their further commercial use. 2.3 COMPREHENSIVE ASSESSMENT OF WAYS TO INCREASE INVESTMENT ATTRACTIVENESS OF JSC VSW RED OCTOBER CJSC VMZ Krasny Oktyabr plans to develop a new technology for steel melting. To do this, it is necessary to finance qualified training of the company’s specialists, taking into account new modern achievements in the field of casting, as well as purchase modern equipment. It is necessary to determine whether this investment project will be profitable. Below we will consider alternative investment options for the implementation of this project. An investment project can be assessed based on a large number of factors: the situation on the investment market, the state of the financial market, geopolitical factor, etc. However, in practice, there are universal methods for determining the investment attractiveness of projects, which give a formal answer: whether it is profitable or unprofitable to invest in a given project. Investment project in the amount of 1000 thousand rubles. today will allow you to return 1331 thousand rubles. in three years. The internal rate of return will be 0.10, and the annual growth will also be 0.10 (Table 2.2). Let us illustrate the process of calculating the internal rate of return using a basic example in which an investment project has a net present value of 886 thousand rubles. at a discount rate of 0.10 (see tables for cash flows). We need to find the discount rate at which the net present value of the cash flows is zero. Let's say the first value (an arbitrary guess) is 0.10. We find that the net present value when using a rate of 0.10 is positive and amounts to 886 thousand rubles. (Table 2.3). Table 2.2 Calculation of annual profitability growth Table 2.3 Calculation of current value at a rate of 0.1 Cash flow, thousand rubles. Cost discount factor (10%) Current value, thousand rubles. Net present value = 886 thousand rubles. We need to change the discount rate so that the net present value becomes zero. Since cash flows are traditional (negative followed by positive), in order to reduce the net present value of future cash flows, the discount rate should be increased (thus making the positive present value of future cash flows smaller). Let's take a discount rate of 0.20 (Table 2.4). The net present value has become negative, indicating that the discount rate of 0.20 is excessively high. For the next assessment, we will choose a value between 0.10 and 0.20, for example 0.16 (Table 2.5). At a discount rate of 0.16, the net present value is zero, which by definition means that 0.16 is equal to the internal rate of return of the investment project. Table 2.4 Calculation of net present value at a rate of 0.2 Cash flow, thousand rubles. Cost discount factor (20%) Current value, thousand rubles. Net present value = -532 thousand rubles. Table 2.5 Calculation of net present value at a rate of 0.16 Cash flow, thousand rubles. Cost discount factor (16%) Current value, thousand rubles. Net present value = 0 The period during which the investor will be able to return the initial costs, while ensuring the required level of profitability, is called the discounted payback period. If income is distributed evenly over the years, then the payback period is calculated by dividing one-time costs by the amount of annual income due to them. If an investment project requires an initial investment of 300 thousand rubles. and it is expected to receive income in the amount of 100 thousand rubles. per year for five years, then the payback period can be found by dividing 300 thousand rubles. by 100 thousand rubles, and it will be three years. If the profit is distributed unevenly, then the payback period is calculated by directly calculating the number of years during which the investment will be repaid by cumulative income. Table 2.6 shows the calculation of the discounted payback period. The formula was used: where P is the current value of the cash flow CF i - cash receipts in period n r - discount rate The calculation shows that over a period of just under four years, the investor will be able not only to recoup the initial investment, but also to ensure a return on investment of 10% per annum. Table 2.6 Calculation of discounted payback period, thousand rubles Today's Investment Value Cash flow of the project Today's value of cash flow (r = 10%) Today's Cumulative Value of Cash Inflows Let's look at the application of the accounting rate of return (ARR). This method is simple and accessible. The accounting rate of return shows how much interest a firm earns on average per year on its investments. You can calculate ARR by dividing the average annual profit of the project by the average annual investment. Let's assume that cash income differs from profit only by the amount of depreciation, and calculate the accounting rate of return, assuming that the depreciation system is linear (every year the accountant writes off 1/5 of the capital costs as expenses). Consider the following project (Table 2.7) Table 2.7 Calculation of accounting rate of return Capital investments, thousand rubles. Cash inflow, thousand rubles. Depreciation, thousand rubles Profit, thousand rubles Average annual profit The average annual investment value under a linear depreciation system is determined as the average between the accounting estimate of investments at the beginning and end of the period under review, i.e.: (2000+0)/2=1000 Let's calculate the current value of the project (NPV) at a discount rate of 10%: The net cash flow of the investment project provides the investor with a return of 10% per annum for 5 years and on top of this an additional 220.2 thousand rubles. (as assessed at the moment). This means that the investor’s current wealth has increased by 220.2 thousand rubles. Let us prove this using the following calculation. Let’s say an investor implementing this project attracts a loan in the amount of 2220.2 thousand rubles. Moreover, 2000 thousand rubles. allocates for capital investments, and 220.2 thousand rubles. expects to use it as a net effect of a future project at its discretion. Let us show that the cash flow of the project's income will provide the investor with the return of this loan and the payment of interest (Table 2.8). It is easy to see that the amount of 2220.2 thousand rubles. is the maximum loan amount that can be “served” by the net cash flow of a given project. Now, based on the same initial data, let’s calculate the IRR: Let's compare the NPV and IRR criteria. Both criteria characterize the effect of project implementation. In a situation where it is necessary to evaluate a separate investment project, both criteria lead to a single decision (Table 2.9) Table 2.8 Calculation of the amount of the issued loan Loan amount at the beginning of the year, thousand rubles. Percentage (10%) Loan amount, thousand rubles. Cash income of the project, thousand rubles. Loan amount at the end of the year, thousand rubles. Table 2.9 Coordination of NPV and IRR criteria when evaluating an individual project Thus, an investment project can provide an increase in the investor’s wealth. A comparative analysis of the enterprise over the past three years of operation (from 2007 to 2009) allowed us to draw a number of conclusions and recommendations. Today, the analyzed enterprise is generally assessed as solvent and having a satisfactory balance sheet structure. During the analyzed period, profitability in all indicators increased significantly. At the moment, the company has a fairly strong property potential. The company does not experience difficulties in selling its products. Steady state of own funds. Over the entire analyzed period, the enterprise maintains a stable amount of equity. All stability and liquidity indicators are not below critical values. In this regard, as a negative trend, we can note the decreasing efficiency of using enterprise funds, expressed in an increase in the asset turnover period and the period for collecting receivables. To improve the efficiency of using enterprise funds, the following activities can be recommended: In order to pay off receivables, an enterprise should organize work to analyze the structure of receivables, how long ago they arose, the reasons for their formation, the reality of collection, etc., and active interaction with debtors. Optimization of warehouse stocks. For this purpose, it is necessary to identify what part of current assets is mobilized into reserves, determine their liquidity and outline possible ways of using them. An increase in inventory due to the unjustified diversion of funds from circulation leads to an increase in accounts payable and a deterioration in the financial condition of the enterprise. Improving contract discipline. When concluding contracts with suppliers, it is necessary to clearly stipulate the terms of delivery and payment for services, and with buyers - the terms, form of payment and terms of payment. Activation of the work of the enterprise’s legal service on unpaid contracts, collection of fines, penalties, and competent conclusion of contracts. It is advisable to develop a payment calendar - in this case, it is necessary to establish a clear order of payments, depending on planned receipts in such a way as to ensure a sufficient level of the current liquidity ratio by the time the financial statements are prepared. CONCLUSION Investment is a long-term process, therefore, when analyzing the investment attractiveness of an enterprise, it is necessary to take into account: The attractiveness of the enterprise in comparison with alternative enterprises from the point of view of maximizing the income of the owners of the enterprise with an acceptable degree of risk, because this is the main goal for financial management The risk of implementing investments, because the longer the payback period, the riskier the investment project The time value of money, because Over time, money changes its value. The course work assessed the financial attractiveness of the enterprise ZAO VMZ Krasny Oktyabr. CJSC VMZ Krasny Oktyabr plans to develop new technologies for steel smelting. To do this, it is necessary to finance qualified training of the company’s specialists, taking into account new modern achievements in the field of casting, as well as purchase modern equipment. It is necessary to determine whether this investment project will be profitable. The course work examines alternative investment options for the implementation of this project. As a result, it was concluded that the investment project can provide an increase in the investor’s wealth. APPLICATION BALANCE SHEET Line code At the beginning of the reporting period At the end of the reporting period I. NON-CURRENT ASSETS Intangible assets Fixed assets Construction in progress Profitable investments in material assets Long-term financial investments Other noncurrent assets TOTAL for section I II. CURRENT ASSETS including: raw materials, materials and other similar values animals for growing and fattening costs in work in progress (distribution costs) finished products and goods for resale goods shipped Future expenses other inventories and costs Value added tax on purchased assets Accounts receivable (payments for which are expected more than 12 months after the due date) Accounts receivable (payments for which are expected within 12 months after the reporting date) including: buyers and customers Short-term financial investments Cash Other current assets TOTAL for section II III. CAPITAL AND RESERVES Authorized capital Extra capital Reserve capital including: reserves formed in accordance with legislation reserves formed in accordance with the constituent documents retained earnings TOTAL for Section III IV. LONG TERM DUTIES Loans and credits including: bank loans due for repayment more than 12 months after the reporting date loans due to be repaid more than 12 months after the reporting date Other long-term liabilities TOTAL for section IV V. SHORT-TERM LIABILITIES Loans and credits including: bank loans subject to repayment within 12 months after the reporting date loans to be repaid within 12 months after the reporting date Accounts payable including: suppliers and contractors bills payable debt to subsidiaries and dependent companies debt to the organization's personnel debt to state extra-budgetary funds debt to the budget advances received other creditors Debt to participants (founders) for payment of income revenue of the future periods Reserves for future expenses Other current liabilities TOTAL for Section V GAINS AND LOSSES REPORT Indicator name Line code During the reporting period For the same period of the previous year I. Income and expenses from ordinary activities Revenue (net) from the sale of goods, products, works, services (less value added tax, excise taxes and similar mandatory payments) Cost of goods, products, works, services sold Gross profit Business expenses Administrative expenses Profit (loss) from sales (lines (010-020-030-040)) II.Other income and expenses Interest receivable Percentage to be paid Income from participation in other organizations Other income other expenses Profit (loss) before tax Income tax and other similar mandatory payments Net profit (retained profit (loss) of the reporting period) LIST OF REFERENCES USED 1. Federal Law of February 25, 1999 No. 39-FZ “On investment activities in the Russian Federation, carried out in the form of capital investments” (as amended and supplemented on January 2, 2000, August 22, 2005) // System "Garant". 2. Anshin V.M. Investment analysis: Educational and practical manual. - M: Delo, 2007. - 492 p. 3. Financial management: a textbook for universities / Ed. G.B. Pole. - M. Finance, UNITY, 2007. - 518 p. 4. Stoyanova E.S. Financial management: theory and practice: textbook. - M.: Perspective, 2006. - 656 p. 5. Blank I.L. Investment management: Training course.-- Kyiv: Nika-Center; Elga-N, 2008. - 112 p. 6. Idrisov A. Planning and analysis of investment efficiency. - M.: 2007. - 186 p. 7. Morozova T.V. Calculation of the discount rate // Accounting.-- 2004.-- No. 3. - P. 12-27. 8. Bogatin Yu.V., Shvandar V.A. Investment analysis: Textbook for universities. - M.: UNITY-DANA, 2007. - 541 p. Posted on Allbest.ru Concept, monitoring and methodological approaches to analyzing the investment attractiveness of an enterprise. Characteristics, financial analysis and analysis of the investment attractiveness of OJSC Lukoil. Ways to increase the investment attractiveness of an enterprise. course work, added 05/28/2010 Goals and subjects of assessing the investment attractiveness of an organization. General characteristics of Monopoly+ LLC, prospects and sources of its development. Development and evaluation of the effectiveness of measures to increase the investment attractiveness of the enterprise. thesis, added 07/11/2015 Brief description of the enterprise OAO Nizhnekamskshina. Tasks and functions of the financial and economic department of the enterprise. Theoretical foundations of the investment attractiveness of an enterprise. Evaluation indicators and methods for analyzing investment attractiveness. course work, added 11/25/2010 The essence and classification of sources of investment financing. Methods for analyzing the investment attractiveness of an enterprise. Characteristics of the main performance indicators of OJSC "Russian Fuel Company", assessment of investment attractiveness. course work, added 09/23/2014 Organizational and economic characteristics of a modern Russian enterprise. Analysis of the financial condition of the organization. Enterprise risk management in the system of increasing investment attractiveness. Assessment of the company's economic activities. thesis, added 05/25/2015 Methodological approaches to the analysis of investment attractiveness and the factors that determine it. Algorithm for monitoring the investment attractiveness of an enterprise. Analysis of liquidity and solvency using the example of OJSC Lukoil. course work, added 04/14/2015 Basic methods for assessing the investment attractiveness of a municipality, used in Russia and abroad. Situational analysis of the Tarnog municipal district, assessment of its investment attractiveness, ways and means of increasing it. thesis, added 11/09/2016 The concept of investment attractiveness of an enterprise and the factors that determine it. Methodological aspects of diagnosing the financial condition in the system of investment attractiveness of an enterprise. Diagnostics of the financial condition of OJSC "Dondukovsky Elevator". thesis, added 12/30/2014 Criteria for the effectiveness of investment projects. Assessment of financial solvency. Indicators for assessing the growth of an investment project. The nature of investment decisions. Ways to solve problems in analytics. Organization of work to evaluate the project. course work, added 11/24/2009 Methodology for assessing the economic efficiency of an investment project. Cash flow concept. Analysis of the investment attractiveness of LLC "Yuniorstroy". Selecting the optimal source of financing for an investment project. Calculation of simple rate of return. In an increasing number of regions, local administrations are actively working to stimulate and support investment activity. A group of regions is gradually emerging - leaders in the field of formation of investment culture and organization of the investment process. Increasing the role of regions in enhancing investment is carried out in several directions. The main areas include the following: The gradual creation of more favorable conditions for investment significantly increases the role of regions in the development of investment activity. The weakness of state support for investment at the federal level all the more strengthens the need to shift the center of gravity of the formation of many aspects of a favorable investment climate to the regions. One of the methods of supporting the regions of Russia is the implementation of the Federal Targeted Investment Program (FAIP), which includes financing of Federal Target Programs (FTP), some of which directly relate to the regions. As a rule, federal target programs are aimed at the socio-economic development of specific districts. The creation of regional investment corporations (RICs) on the basis of individual municipalities can be considered as methods that consolidate the regional economy and increase its competitiveness in the financial market and, as a consequence, investment attractiveness. As a rule, in many regions of Russia there are a number of reasons for this: It is assumed that RICs should concentrate existing assets and financial capital and direct them to the development of the territory within the framework of comprehensive investment projects. The method is based on the idea of the need to reform the existing economic management system. The combination of horizontal and vertical components of the control mechanism is determined by the individual characteristics of the state structure. The greatest depth of vertical integration is inherent in totalitarian states with rigid centralized power. Such a system significantly limits the economic independence of territorial entities, and establishes the development of individual industries (or the development of the state as a single economy) as the basis for general economic policy. The economic management system of democratic states - states of developed market economies - transfers significant rights to local self-government (municipalities). Strengthening horizontal integration (or decentralization) shifts the emphasis of state economic policy to regional development. MINISTRY OF EDUCATION OF THE REPUBLIC OF BELARUS EE "BELARUSIAN STATE ECONOMIC UNIVERSITY" Department of Economics of Industrial Enterprises COURSE WORK by discipline: Economics of an organization (enterprise) on the topic of: Investment attractiveness of the enterprise: assessment and areas for improvement
MINSK 2012 Essay
Course work: 51 pp., 13 tables, 20 sources, 1 appendix. investments, investment attractiveness, profitability, creditworthiness, financial stability, capital Object of study- investment attractiveness of the enterprise. Subject of study-factors influencing the investment attractiveness of the enterprise. Goal of the work: assessing the investment attractiveness of the enterprise and determining ways to increase it. Research methods: systemic, analytical, comparison and analysis. Research and development: the essence of investment attractiveness was considered, an analysis of the investment mechanism and methods for assessing the investment attractiveness of an enterprise was carried out, and proposals for its improvement were developed. The author of the work confirms that the analytical material presented in it correctly and objectively reflects the state of the process under study, and all theoretical, methodological and methodological provisions and concepts borrowed from literary and other sources are accompanied by references to their authors. Introduction The concept and essence of the investment attractiveness of an enterprise Financial analysis and its results as the main component of the investment attractiveness of an enterprise 1 The essence of financial and economic analysis, goals and methods of analysis 1.1 Analysis of the profitability (profitability) of the enterprise 1.2 Analysis of the financial stability of the enterprise 1.3 Analysis of the creditworthiness of the enterprise 1.4 Analysis of capital use ,
enterprise business activity ratios 1.5 Analysis of the level of self-financing of the enterprise 2 Methodology for assessing the investment attractiveness of enterprises Ways to increase the investment attractiveness of an enterprise Conclusion List of sources used Application Introduction
To maintain competitiveness and market share, the company constantly needs to reconstruct production facilities, update the existing material and technical base, increase the volume of production activities, and develop new types of activities. To reconstruct old equipment and purchase new equipment, an enterprise needs a large investment of money, which is most often unavailable due to a lack of available funds. That is why an enterprise needs investments to start its activities, and then for subsequent development. One of the most important and responsible stages of the investment process is the choice of the enterprise into which investment resources will be invested. The choice of an investment object is mainly influenced by such a category as the investment attractiveness of the enterprise. Based on this, it should be noted that effective investment is possible only by determining and comparing the investment attractiveness of various enterprises. Thus, in the absence of this economic category, the investment process objectively loses its meaning. For an enterprise that requires an injection of capital from external sources, the most important task is to increase investment attractiveness. Only if its value is high, the enterprise will receive sufficient funds to operate, expand production, release new products or change the field of activity (if the enterprise is sold). This is precisely what determines the relevance of the topic of this course work, “Investment attractiveness of an enterprise: assessment and areas for improvement.” In modern conditions, for the effective operation of an enterprise, the problem of mobilization and effective use of investments is particularly relevant. Investment activity is an integral part of the business activity of economic entities, which also includes production, innovation, market, marketing and other activities. Forming investment attractiveness, developing a clear investment strategy, identifying its priority areas, mobilizing all sources of investment is the most important condition for the sustainable and high-quality development of enterprises in today's difficult conditions. An analysis of economic literature and business practice gives grounds to assert that an enterprise cannot refuse to invest. This contradicts its life cycle and makes it completely unprotected compared to other competing enterprises. It is even right to say that failure to invest is the most significant risk to which an enterprise can expose itself. It is in many ways tantamount to the bankruptcy of an enterprise. The implementation of an investment project allows an enterprise to adapt to macroeconomic realities and changes in the external environment, anticipating them. Consequently, investment cannot be considered as a passive element of economic action. Rather, on the contrary, they are an active element that allows the enterprise not only to adapt, but also to adapt the external environment. Investment decisions therefore must take into account the parameters of not only the internal, but also the external environment. In a crisis, the main source of investment for an enterprise can only be external borrowing, including in the form of a bank loan. To reduce banking risk, as well as other investment risks, there is an urgent need to assess the creditworthiness of enterprises. This is especially difficult in conditions of information secrecy and the absence of any information systems for resident companies. Therefore, the practical significance of issues related to determining the investment attractiveness of enterprises is beyond doubt, because Without investment injections into economic sectors, stabilization of the economy and recovery from the economic crisis are impossible. The viability of the enterprise depends on the solution to this problem. The main component in the methodology for determining investment attractiveness is the use of financial analysis as the main mechanism for ensuring the financial stability of an enterprise and assessing its attractiveness for potential investors. The object of study of this course work is the investment attractiveness of the enterprise. The subject of the study is factors influencing the investment attractiveness of an enterprise. Based on the foregoing, we can formulate the main goal of this course work: to explore the investment attractiveness of an enterprise in modern conditions and to propose ways to increase investment attractiveness. This study will be conducted using the example of the open joint-stock company Minsk Bearing Plant. Open joint-stock company "Minsk Bearing Plant" (hereinafter - OJSC "MPZ"), founded in 1948. The main goals of OJSC MPZ are: carrying out business activities aimed at making a profit. OJSC MPZ also carries out foreign economic activities in the manner established by the legislation of the Republic of Belarus. To achieve this goal, the following tasks were set: Provide a theoretical justification for investments and the investment attractiveness of the enterprise; analyze methods of assessment and indicators of investment attractiveness; propose ways to increase the investment attractiveness of an enterprise. 1. The concept and essence of the investment attractiveness of an enterprise
Any economic process represents the transformation of resources into an economic product and proceeds according to the scheme “resources - factors of production - product of economic activity”. Natural, labor, capital, information resources, united by entrepreneurial initiative, under the influence of management are involved in production and gradually become its factors. The production process occurring as a result of the action of factors leads to the formation and creation of an economic product in the form of products, goods, work performed, services. The transformation of economic resources into active factors of production has a certain duration in time, that is, between the involvement of resources in production and their direct participation as an agent, a factor in the production process, a certain time passes, necessary for the transformation of the original resource into a factor. The time interval between the investment of funds, the involvement of resources and their transformation into active factors of production can vary significantly for different factors of production. Since these resources are invested in a specific business and can no longer be used for other purposes, investments lead to the diversion of funds during the transformation of resources into factors of production and economic activity. Thus, it is permissible to consider any resources used in the economy as investments in the economy, since, regardless of the nature of their use, resources do not immediately become factors of production. But more often, investments are understood as diverted resources that undergo deep, long-term transformations before they become factors of production. Investments in fixed capital (fixed means of production), in inventories, reserves, as well as in other economic objects and processes that require the diversion of material and monetary resources for a long time are called investments. Before analyzing the concept and essence of the investment attractiveness of an enterprise, let us turn to the concept of “investment policy”, which is an integral part of the overall financial strategy of the enterprise, which determines the choice and method of implementing the most rational ways to expand and update its production potential. The existence and effective operation of an enterprise in market economic conditions is unrealistic without well-established management of its capital, that is, the main types of financial assets (investment resources) in the form of material and monetary assets, various types of financial instruments. The capital of an enterprise is, on the one hand, a source, and on the other, a result of the enterprise’s activities. The enterprise's financial resources are used to finance current expenses and to investments, which are the use of financial resources in the form of long-term capital investments in order to increase assets and generate profits. The term investment comes from the Latin word “invest,” which means “to invest.” Investments are a set of long-term costs of financial, labor and material resources in order to increase assets and profits. This concept covers both real investments (capital investments) and financial (portfolio) investments. Investments ensure the dynamic development of the enterprise and allow solving the following tasks: Expanding your own business activities through the accumulation of financial and material resources; acquisition of new businesses; diversification due to the development of new areas of business. The expansion of one’s own business activity indicates the enterprise’s strong position in the market, the presence of demand for the products produced, the work performed or the services provided. Investments can be: Cash, target bank deposits, shares, shares, bonds and other securities; movable and immovable property (buildings, structures, machinery, equipment, etc.); rights to use land, natural resources, and any other property. Any investment is associated with the investment activity of an enterprise, which is the process of justifying and implementing the most effective forms of capital investment aimed at expanding the economic potential of the enterprise. To carry out investment activities, enterprises develop investment policies. This policy is part of the enterprise development strategy and the overall profit management policy. It consists in selecting and implementing the most effective forms of capital investment in order to expand the volume of operating activities and generate investment profits. In the economic literature, the problem of investment has been and is being given quite a lot of attention, including revealing the essence of investment policy. However, in most scientific works there are no clear definitions of the concept of “investment policy of an enterprise.” Meanwhile, the precise definition of this concept is quite important from both theoretical and practical positions, as it allows for more targeted scientific research and real management of the investment process. So, according to G.V. Savitskaya, investment policy is an integral part of the financial strategy of an enterprise, which consists in choosing and implementing the most rational ways to expand and update production potential. P.L. Vilensky defines investment policy as a system of economic decisions that determine the volume, structure and directions of investments both within an economic entity (enterprise, firm, company, etc.), region, country, and outside, with the goal of developing production, entrepreneurship, making a profit or other final results. In the modern economic dictionary B.A. Raizberg gave the following definition of an enterprise’s investment policy: “Investment policy is an integral part of the economic policy pursued by enterprises in the form of establishing the structure and scale of investments, directions for their use, sources of receipt, taking into account the need to update fixed production assets and increase their technical level.” In order to determine the maximum efficiency of an investment decision, the concept of investment attractiveness of an enterprise has been introduced. The concept is quite new; it appeared in economic publications relatively recently and is used mainly in the characterization and assessment of investment objects, rating comparisons, and comparative analysis of processes. The study of various points of view on its interpretation made it possible to establish that in modern ideas there is no single approach to the essence of this economic category. One of the most common points of view is the comparison of investment attractiveness with the feasibility of investing in an enterprise of interest to the investor, which depends on a number of factors characterizing the activity of the entity. The definition, although correct, is quite vague and does not provide grounds for discussing the assessment. Assessing investment attractiveness from the point of view of income and risk, it can be argued that this is the presence of income (economic effect) from investing at a minimum level of risk. Thus, it becomes obvious that regardless of the approach to definition used by an expert or analyst, most often the term “investment attractiveness” is used to assess the feasibility of investing in a particular object, select alternative options and determine the efficiency of resource allocation. It should be noted that determining investment attractiveness is aimed at generating objective, targeted information for making an investment decision. Therefore, when approaching its assessment, one should distinguish between the terms “level of economic development” and “investment attractiveness”. If the first determines the level of development of the object, a set of economic indicators, then investment attractiveness is characterized by the condition of the object, its further development, prospects for profitability and growth. There are the following main types of financing an enterprise from external sources: investing in equity capital and providing borrowed funds. The main forms of attracting investments in equity capital are: investments by financial investors; strategic investing. Investments of financial investors represent the acquisition by an external professional investor (group of investors), as a rule, of a blocking, but not a controlling stake in a company in exchange for investments with the subsequent sale of this stake after 3-5 years (mainly venture capital and mutual funds), or placement of company shares on the securities market to a wide range of investors (in this case, these can be companies of any line of activity or individuals). The investor in this case receives the main income through the sale of his stake (that is, by exiting the business). In this regard, attracting investments from financial investors is advisable for the development of the enterprise: modernization or expansion of production, growth in sales volumes, increasing operational efficiency, as a result of which the value of the company and, accordingly, the capital invested by the investor will increase. Strategic investment is the acquisition by an investor of a large (up to a controlling) stake in a company. As a rule, strategic investing involves a long-term or permanent presence of the investor among the owners of the company. Often, the final stage of strategic investment is the acquisition of a company or its merger with an investor company. Industry leading enterprises and large enterprise associations usually act as strategic investors. The main goal of a strategic investor is to increase the efficiency of their own business and gain access to new resources and technologies. Investment in the form of provision of borrowed funds uses the following instruments - loans (bank, trade), bond loans, leasing schemes. With this form of financing, the main goal of the investor is to obtain interest income on the invested capital at a given level of risk. Therefore, this group of investors is interested in the further development of the enterprise from the point of view of its ability to fulfill obligations to pay interest and repay the principal amount of the debt. Thus, all investors can be divided into two groups: creditors interested in receiving current income in the form of interest, and business participants (owners of shares in the business) interested in receiving income from the growth of the company’s value. The investment attractiveness of an enterprise for each group of investors is determined by the level of income that an investor can receive on invested funds. The level of income, in turn, is determined by the level of risks of non-return of capital and non-receipt of income on capital. In accordance with these criteria, investors determine the requirements for enterprises when investing. It is obvious that the main requirement for investor-creditors is confirmation of the enterprise’s ability to fulfill obligations to repay capital and pay interest, and for investors participating in the business, confirmation of the ability to absorb investments and increase the value of the investor’s shareholding. An investor puts forward various requirements for an enterprise when making an investment decision. At the same time, experience shows that enterprises quite often do not meet the listed investor requirements. This once again emphasizes the relevance of assessing the real financial condition of the enterprise, the issues of which are discussed in subsequent sections of the work. Of particular note is the role of investment as a source of economic growth within the national economy as a whole. 2. Financial analysis and its results as the main component of the investment attractiveness of an enterprise
2.1 The essence of financial and economic analysis, goals and methods of analysis
Managing any object requires, first of all, knowledge of its initial state, information about how the object existed and developed in the periods preceding the present. Only by obtaining sufficiently complete and reliable information about the activity of an object in the past, about the prevailing trends in its functioning and development, can management decisions, business plans and development programs of objects for future periods be developed. The need for analysis always exists, regardless of the type of economic relations developing in society, but the emphasis placed in its process is different, they depend on socio-economic conditions. In a market economy, business entities resort to analyzing the financial condition of an enterprise periodically in the process of regulation, control and monitoring of the state and operation of enterprises, drawing up business plans and programs, as well as in special situations. At the same time, in conditions of an economic crisis, an objective assessment of the financial condition of an enterprise is not only and not so much in demand by the enterprise itself, but by its economic partners, primarily potential investors, including the state. The main goal of financial analysis is to obtain several key (the most informative) parameters that give an objective and accurate picture of the financial condition of the enterprise, its profits and losses, changes in the structure of assets and liabilities, and in settlements with debtors and creditors. Analysis of the financial condition of an enterprise is an in-depth, scientifically based study of financial relations, the movement of financial resources in a single production and trading process, and allows you to track the trend of its development, give a comprehensive assessment of economic and commercial activities and thus serves as a link between the development of management decisions and production and entrepreneurial activity itself. The financial condition of an economic entity is a characteristic of its financial competitiveness (i.e., solvency, creditworthiness), the use of financial resources and capital, and the fulfillment of obligations to the state and other economic entities. The movement of any inventory, labor and material resources is accompanied by the formation and expenditure of funds, therefore the financial condition of an economic entity reflects all aspects of its production and trading activities. Characteristics of the financial condition of an economic entity include: profitability analysis; financial stability analysis; credit analysis; analysis of capital use; analysis of the level of self-financing. Financial condition analysis is carried out using the following basic techniques: comparison, summary and grouping, chain substitutions, differences. In some cases, methods of economic and mathematical modeling (regression analysis, correlation analysis) can be used. The method of comparison is to compare the financial indicators of the reporting period with their planned values (standard, norm, limit) and with the indicators of the previous period. In order for the comparison results to give correct analysis conclusions, it is necessary to establish the comparability of the compared indicators, that is, their homogeneity and same quality. The comparability of analytical indicators is associated with the comparability of calendar periods, assessment methods, working conditions, inflationary processes, etc. The method of summary and grouping consists in combining information materials into analytical tables, which makes it possible to make the necessary comparisons and conclusions. Analytical groupings allow, in the process of analysis, to identify the relationship between various economic phenomena and indicators; determine the influence of the most significant factors and discover certain patterns and trends in the development of financial processes. The method of chain substitutions is used to calculate the magnitude of the influence of individual factors in the overall complex of their impact on the level of the aggregate financial indicator. This technique is used in cases where the relationship between indicators can be expressed mathematically in the form of a functional relationship. The essence of the method of chain substitutions is that, sequentially replacing each reporting indicator with a basic one, all others are considered as unchanged. This replacement allows us to determine the degree of influence of each factor on the overall financial indicator. The number of chain substitutions depends on the number of factors influencing the aggregate financial indicator. Calculations start from the initial base, when all factors are equal to the base indicator, so the total number of calculations is always one more than the number of determining factors. The degree of influence of each factor is established by sequential subtraction: the first is subtracted from the second calculation; from the third - the second, etc. The use of chain substitutions requires a strict sequence of determining the influence of individual factors. This sequence lies in the fact that, first of all, the degree of influence of quantitative indicators characterizing the absolute volume of activity, the volume of financial resources, the volume of income and costs is determined, and secondly - qualitative indicators characterizing the level of income and costs, the degree of efficiency of use of financial resources . The method of differences is that the absolute or relative difference (deviation from the basic indicator) is preliminarily determined for the factors being studied and the aggregate indicator. This deviation (difference) for each factor is then multiplied by the absolute value of other interrelated factors. When studying the influence of two factors (quantitative and qualitative) on an aggregate indicator, it is customary to multiply the deviation for the quantitative factor by the basic qualitative factor, and the deviation for the qualitative factor by the reported quantitative factor. The method of chain substitutions and the method of differences are a type of method called “elimination.” Elimination is a logical technique used in the study of functional connections, in which the influence of one factor is consistently isolated and the influence of all others is excluded. The use of analysis techniques for specific purposes of studying the state of the analyzed business entity constitutes the analysis methodology. 2.1.1 Analysis of the profitability (profitability) of the enterprise The profitability of an economic entity is characterized by absolute and relative indicators. The absolute indicator of profitability is the amount of profit, or income. The relative indicator is the level of profitability. In the process of analysis, the dynamics of changes in the volume of net profit, the level of profitability and the factors that determine them are studied. The main factors influencing net profit are the volume of revenue from sales of products, the level of cost, the level of profitability, income from non-sales operations, the amount of income tax and other taxes paid from profits. An analysis of the profitability of a business entity is carried out in comparison with the plan and the previous period based on the data of the year. Factor analysis of profit from product sales: ) Calculation of the total change in profit (DP) from product sales: DP = P 1 - P 0 , (1) where P 1 is the profit of the reporting year, rub.; P 0 - profit of the base year, rub. ) Calculation of the impact on profit of changes in selling prices for sold products (DP 1): DP 1 = S g 1 p 1 - Sg 1 p 0 , (2) where S g 1 p 1 - sales in the reporting year in prices of the reporting year (p - price of the product; g - number of products); Sg 1 p 0 - sales in the reporting year in base year prices. ) Calculation of the impact on profit of changes in production volume (DP 2): DP 2 = P 0 K 1 - P 0 = P 0 (K 1 - 1), (3) where K 1 is the growth rate of product sales volume estimated at the base cost: K 1 = S g 1 c 0 / S g 0 c 0 , (4) where S g 1 c 0 is the actual cost of products sold for the reporting year in prices of the base year, rub.; S g 0 c 0 - cost of the base year, rub. ) Calculation of the impact on profit of changes in product costs: DP 3 = S g 1 c 1 - S g 1 c 0 , (5) where S g 1 c 1 is the actual cost of products sold for the reporting year, rub. The sum of factor deviations gives the total change in profit from sales for the reporting period: DP = P 1 - P 0 = DP 1 + DP 2 + DP 3 = S DP i , (6) where: DP i is the change in profit due to the i-th factor. Based on the data in the application, we will compile Table 1 and conduct a factor analysis of profit from sales of products at MPZ OJSC. Million rub. Conclusion: Profit from sales of products at OJSC MPZ in 2011 compared to 2010 decreased by 18,020 million rubles, including due to: increase in selling prices, the company’s profit increased by 99,658 million rubles; decrease in the volume of products sold, the enterprise’s profit decreased by 46,494 million rubles; increase in production costs, the enterprise's profit decreased by 71,184 million rubles. Factor analysis of profitability levels: Profitability indicators are important characteristics of the factor environment for generating profit and income of enterprises. For this reason, they are mandatory elements of comparative analysis and assessment of the financial condition of the enterprise. When analyzing production, profitability indicators are used as a tool for investment policy and pricing. Let us denote the profitability of products of the base and reporting periods by R vп0 and R vп1, respectively. By definition we have: DR vп = R vп1 - R vп0 (11) where P 0, P 1 - profit from sales of the base or reporting periods, respectively, rubles; р0, V р1 - sales of products, respectively; 0, S 1 - production cost, respectively, rub.; DR vп - change in profitability for the analyzed period. The influence of the factor of price changes on products is determined by calculation (using the method of chain substitutions): Accordingly, the influence of the cost change factor will be: The sum of factor deviations gives the total change in profitability for the period: DR vп = DR vп1 + DR vп2. (14) Based on the application data, we will compile Table 2 and conduct a factor analysis of profitability levels at MPZ OJSC. Table 2 - Indicators for factor analysis of the level of profitability at OJSC MPZ Note - Source: own development Conclusion: the profitability of sales at OJSC MPZ in 2011 increased compared to 2010 by 0.021 million rubles. 2.1.2 Analysis of the financial stability of the enterprise One of the most important characteristics of the financial condition of an enterprise is the stability of its activities in the light of a long-term perspective. It is related to the overall financial structure of the enterprise, the degree of its dependence on external creditors and investors. A financially stable business entity is one that, using its own funds, covers funds invested in assets (fixed assets, intangible assets, working capital), does not allow unjustified receivables and payables, and pays its obligations on time. The main thing in financial activities is the correct organization and use of working capital. Therefore, in the process of analyzing the financial condition, these issues are given the main attention. Financial stability analysis includes the following subsections: ) Analysis of the composition and placement of the company's assets. An important indicator for assessing financial stability is the growth rate of real assets. Real assets are actually existing property and financial investments at their actual value. Real assets do not include intangible assets, depreciation of fixed assets and materials, use of profits, borrowed funds. The growth rate of real assets characterizes the intensity of property growth and is determined by the formula: where A is the growth rate of real assets, %; C - fixed assets and investments excluding depreciation, trade margins on unsold goods, intangible assets, used profits; Z - inventories and costs; D - cash, settlements and other assets excluding used borrowed funds; indices “0 / 1” - previous (base) / current (reporting) year. Based on the application data, we will compile Table 3 and calculate the growth rate of real assets in MPZ OJSC. Table 3 - Indicators for calculating the growth rate of real assets in OJSC MPZ Note - Source: own development Conclusion: the growth rate of real assets in OJSC MPZ was 30.91%. ) Analysis of the dynamics and structure of the company’s sources of financial resources. In this analysis of the company’s sources of financial resources, it is necessary to pay special attention to the qualitative composition of the sources of equity capital, as well as the ratio of equity, borrowed and borrowed funds, taking into account the specifics, nature and type of activity of the company. To assess the financial stability of a business entity, the autonomy coefficient and the financial stability coefficient are used. The autonomy coefficient characterizes the independence of the financial condition of an economic entity from borrowed sources of funds. It shows the share of own funds in the total amount of sources: where K a is the autonomy coefficient; S I - total amount of sources, rub. The minimum value of the autonomy coefficient is taken at 0.5. K a ³ 0.5 means that all obligations of a business entity can be covered by its own funds. An increase in the autonomy coefficient indicates an increase in financial independence and a decrease in the risk of financial difficulties. The financial stability ratio is the ratio of equity and borrowed funds: where K y - financial stability coefficient; M - own funds, rub.; Z - borrowed funds, rub.; K - accounts payable and other liabilities, rub. The excess of own funds over borrowed funds means that the business entity has a sufficient margin of financial stability and is relatively independent of external financial sources. Then the dynamics and structure of own working capital and accounts payable are studied separately. The sources of formation of own funds are the authorized capital, additional capital, deductions from profits (to the reserve fund, to special-purpose funds - the accumulation fund and the consumption fund), targeted financing and revenues, lease obligations. Targeted financing and revenues represent a source of funds for an enterprise intended for the implementation of targeted activities: for the maintenance of children's institutions and others. Based on the data of OJSC MPZ (Appendix), we will compile Table 4 and calculate the autonomy coefficient and the financial stability coefficient of the enterprise. Note - Source: own development Conclusion: The autonomy coefficient at OJSC MPZ in 2010 and 2011 was ³ 0.5. This means that all obligations of a business entity can be covered by its own funds. An increase in the autonomy coefficient indicates an increase in financial independence and a decrease in the risk of financial difficulties. Also in 2011, compared to 2010, there was an increase in the financial stability ratio. The excess of own funds over borrowed funds means that the business entity has a sufficient margin of financial stability and is relatively independent of external financial sources. ) Analysis of the availability and movement of the enterprise’s own working capital. This analysis involves determining the actual size of funds and factors influencing their dynamics (replenishment of the reserve fund, growth in the amount of funds used by savings and consumption funds, etc.). The presence of its own working capital is very important for the company and shows what part of the mobile assets is financed from its own funds and how much the current activities of the company depend on external sources of financing. An increase in the amount of own working capital indicates that the business entity has not only retained existing funds, but has also accumulated an additional amount. ) Analysis of the presence and movement of accounts payable. Any company must monitor the size and timing of payment of its accounts payable, preventing the occurrence of an unjustified part of it, the presence of which indicates an unstable financial condition. Unjustified accounts payable include debt to suppliers for settlement documents not paid on time. Long-term debt is also analyzed. ) Analysis of the availability and structure of working capital. Analysis of working capital is carried out in the direction of studying their dynamics and composition. The analysis compares the amounts of working capital at the beginning and end of the reporting period and identifies the legality and feasibility of diverting funds from circulation. The most important is the analysis of the use of funds invested in production inventories (stocks of raw materials and materials), in inventory and cash in hand. The amount of working capital is affected by changes in revenue from product sales and inventory standards in days. ) Analysis of accounts receivable. In the process of analysis, it is necessary to study accounts receivable, establish its legality and timing, and identify normal and unjustified debt. The financial condition of an economic entity is influenced not by the presence of receivables, but by their size, movement and form, that is, what caused this debt. The emergence of accounts receivable is an objective process in economic activity under a non-cash payment system, as well as the appearance of accounts payable. Accounts receivable are not always formed as a result of violation of the payment procedure and do not always worsen the financial condition. Therefore, it cannot be considered in full as a diversion of own funds from circulation, since part of it serves as the object of bank lending and does not affect the solvency of the business entity. There is a distinction between normal and unjustified debt. Unjustified debt includes debt for claims, compensation for material damage (shortages, theft, damage to valuables), etc. Unjustified receivables are a form of illegal diversion of working capital and violation of financial discipline. When analyzing the financial condition, it is advisable to study the correct use of one’s own working capital and identify their immobilization. Immobilization of own working capital means using them for other purposes, that is, in fixed assets, intangible assets and long-term financial investments. In a market economy, an economic entity independently manages its own and borrowed funds. Therefore, the analysis of the immobilization of own working capital is carried out only with a sharp decrease in own funds during the reporting period. ) Analysis of the solvency of the company. The solvency of an enterprise refers to its ability to withstand losses. When assessing the solvency of a company, the main focus is on equity capital. It is through own capital, of course, within reason, that losses that may arise in the process of economic activity are covered. When the assets of an enterprise exceed its borrowed capital, i.e. when equity capital has a positive value, the enterprise is called solvent. And accordingly, if the borrowed capital exceeds the assets, that is, when, in the event of a possible closure, the company will not be able to pay all its creditors, then it is considered insolvent. In international practice, solvency means the sufficiency of liquid assets to repay all short-term obligations to creditors at any time. An idea of the solvency of an enterprise can be obtained by calculating its solvency ratio: It is impossible to say in general what value of the solvency ratio of an enterprise can be considered satisfactory. As a rule, with a certain degree of convention, if the solvency ratio of a trading or manufacturing company is equal to or greater than 50%, then it is considered that there is no reason to worry about its solvency. In fact, this largely depends on how realistically the assets of the enterprise are valued in the balance sheet. Based on the indicators in Table 4, we will calculate the solvency ratios of MPZ OJSC in 2010-2011. Conclusions: Because the solvency ratio is greater than 50%, therefore, the company is solvent. In 2011, compared to 2010, there was a slight increase in the solvency of the enterprise. The solvency of an enterprise should be calculated only on the basis of intra-economic factors, as a system of indicators (coefficients) according to current reporting data. They must reflect three states of the enterprise’s financial assets: stability of the financial position; efficiency of use of funds; current solvency (liquidity of funds). The selected system of coefficients (relative indicators) includes 20 indicators, six in each group and two indicators outside the groups: the amount of capital of the enterprise; his reputation. The choice of coefficients for the presented groups significantly reduces the impact of inflation and averages possible deviations for unforeseen, random reasons. When calculating them, a methodology is used that gives a unidirectional result: an increase in indicators is equivalent to an improvement in solvency. This allows you to use the enterprise rating score in the future. Indicators of the first group, characterizing the stability of the financial position of the enterprise, are presented in Table 5. Indicators of the first group are taken into account as points for the rating, taking into account the long-term impact of their impact, with a correction factor of 0.8. Table 5 - Indicators of financial stability Indicator name Calculation method Autonomy coefficient, K 1 Independence from external sources of financing Equity / Book value of assets Fund mobility coefficient, K 2 Potential opportunity to turn assets into liquid funds Cost of mobile means / Cost of non-mobile means Vehicle maneuverability coefficient (net mobility), K 3 Absolute opportunity to turn assets into liquid funds Mobile funds minus current liabilities / Mobile funds Ratio of equity to total debt, K 4 Securing debt with equity Equity / Debt on loans and borrowings plus accounts payable Ratio of equity to long-term debt, K 5 Securing long-term debt with equity. Equity / Long-term debt Own funds ratio, K 6 Providing current assets of own. sources Equity minus non-current assets / Current assets Note - Source: Indicators of the second group, reflecting the efficiency of use of funds, are presented in Table 6. In this group of indicators there are no generally accepted standards, therefore the enterprise rating in points is determined as the ratio of the indicator at the end of the period or on average for the period to the indicator at the beginning of the year. It is also necessary to take into account that increasing the efficiency of using an enterprise’s funds does not immediately increase solvency, and therefore an adjustment factor of 0.9 is applied. Table 6 - Indicators of efficiency of use of funds Indicator name Economic content of the indicator Ratio of sales revenue to the amount of non-mobile funds, K 7 Return on assets: sales of non-mobile funds per ruble Sales revenue (net), i.e. net of taxes / Amount of non-mobile funds per asset Ratio of sales revenue to the amount of mobile funds, K 8 Turnover of funds, sales of mobile (working) funds per ruble Sales revenue (net) / Amount of mobile funds on the balance sheet asset Profitability ratio to sales revenue, K 9 Profitability (profitability) of sales Balance sheet profit / Sales revenue (net) Profitability ratio to total capital, K 10 Profitability (profitability) of all capital, investments in the development of the enterprise Balance sheet profit / Value of the enterprise's assets on the balance sheet Profitability to equity ratio, K 11 Profitability (profitability) of the enterprise's equity capital Balance sheet profit / Equity value (balance sheet liability) Ratio of net profit to balance sheet profit of the enterprise, K 12 The ability of the enterprise to self-finance Net profit (net of taxes) / Balance sheet profit: Note - Source: Indicators of the third group, reflecting the current solvency of the enterprise, are presented in Table 7. Table 7 - Indicators of current solvency Indicator name Economic content of the indicator Calculation method Debt coverage ratio, K 13 The amount of liquid assets of the enterprise / The amount of short-term debt Total liquidity ratio, K 14 Amount of liquid funds (except for inventories) / Amount of short-term debt Absolute liquidity ratio, K 15 Cash liquidity / Amount of short-term debt Ratio of short-term receivables and payables, K 16 Short-term accounts receivable / Short-term accounts payable Ratio of long-term receivables and payables, K 17 Long-term accounts receivable / Long-term accounts payable Ratio of loans and credits repaid on time to the total amount of loans and credits, K 18 Timely fulfillment of obligations to the credit system Amount of loans and credits repaid on time / Total amount of loans and credits Note - Source: In this group of indicators, rating points are calculated with an increasing factor of 1.3 (taking into account the immediate impact on the solvency of the enterprise). The indicators of this group have a decisive impact on the overall assessment of the solvency of the enterprise. The method for calculating them is generally accepted. First of all, on the basis of the enterprise’s balance sheet, a liquidity balance sheet is drawn up. Active and passive in it has four sections. The assets include: ) Quickly selling assets; ) Assets of average marketability; ) Assets that are slowly being sold; ) Hard to sell assets (not mobile assets). The first section is used to calculate the absolute liquidity ratio, the sum of the first and second - to calculate the total liquidity ratio, and the sum of the first, second and third asset sections - to calculate the debt coverage ratio (numerator). In the passive: ) Short-term liabilities; ) Obligations of medium urgency; ) Long term duties; ) Permanent liabilities (funds). The sum of the first and second sections is used to calculate all three indicators: coverage ratios, total liquidity, absolute liquidity (denominator). The last two indicators that are outside the groups are the size and reputation of the enterprise. The size of the enterprise as an additional factor of stability is assessed by its authorized capital. The reputation of an enterprise is assessed expertly on the basis of accumulated data by a commercial bank, investment fund, local administration, or partner of the enterprise. The following criteria are accepted: bad reputation - 50 points, average - 100 points, good - 150 points. The overall score on which the enterprise rating depends is determined as the arithmetic mean: the sum of points, taking into account correction factors, is divided by 20 (the number of indicators used). According to the rating, enterprises are divided into five classes: Highest class - more than 100 points; First class - from 90 to 100 points; Second class - from 80 to 90 points; Third grade - from 70 to 80 points; Fourth grade - below 70 points. Analysis of the company's solvency is also carried out by comparing the availability and receipt of funds with essential payments. Solvency is characterized by the solvency ratio, which is defined as the ratio of the company's most liquid assets (cash) to priority debts. If the solvency ratio is equal to or more than one, this means that the company is solvent. Methods for assessing solvency: The possibilities of obtaining loans and other borrowed funds, as well as their price for the enterprise, depend on one of the most important aspects of the financial condition - the solvency of the enterprise. If an enterprise wants to have borrowed funds in its turnover, it must ensure a sufficiently high level of solvency at which creditors provide it with these borrowed funds. There are traditional measures called solvency ratios: absolute liquidity ratio, intermediate coverage ratio and total coverage ratio. Until recently, it was generally accepted that an enterprise was sufficiently solvent if it had an absolute liquidity ratio (the ratio of cash and short-term financial investments to short-term debt) of at least 0.2; the intermediate coverage ratio (the ratio of cash, short-term financial investments and funds in settlements to short-term debt) is not lower than 0.7; the overall coverage ratio is not lower than 2, although with a very high turnover of working capital it was considered sufficient at the level of 1.5. But, as a rule, cash and short-term financial investments are significantly below 10%, and material current assets are less than half of current assets due to high accounts receivable. The structure of working capital of enterprises, in addition, can sharply decrease in certain periods. This means that establishing any standards for the solvency ratio in the current conditions is impossible. Based on the above, there are no solvency criteria for the absolute liquidity ratio and the intermediate coverage ratio. It is generally inappropriate to focus on their level. The only real measure of the level of solvency of an enterprise is the total coverage ratio (comparing the value of all current assets with the total amount of short-term debts), which, regardless of the structure of current assets, answers the question of whether the enterprise is able to pay off its short-term obligations without creating difficulties for further work. But this does not mean at all that fulfilling this condition requires ensuring a level of overall coefficient of 2 or 1.5. For some enterprises the sufficient level may be lower, for others it may be higher. It all depends on the structure of working capital, as well as on the state of material working capital and accounts receivable. It is important whether the enterprise has excess material current assets, and if so, whether they are sufficiently liquid, i.e. can actually be sold and turned into money. If an enterprise, under specific operating conditions (delivery interval, reliability of suppliers, product sales conditions, etc.) requires more material resources than is listed on its balance sheet, this is also important for assessing its solvency using the general coverage ratio. In addition, it is important whether the company has bad receivables, and if so, how many. An assessment of the state of inventories and accounts receivable can be made by enterprise specialists. It is important as a justification of solvency to creditors. Thus, currently, assessing the level of solvency of enterprises requires an individual approach. Without serious analytical work, neither the enterprise nor its partners, including banks and potential investors, will be able to answer the question of whether the enterprise is solvent. And without an answer to this question, it is difficult to establish correct economic relationships with the enterprise, to decide whether and on what terms it is advisable to provide it with loans and credits, to make financial investments in its capital. Indicators of solvency or capital structure. Solvency indicators characterize the degree of protection of the interests of creditors and investors with long-term investments in the company. They reflect the company's ability to repay long-term debt. Sometimes the ratios of this group are called capital structure ratios. The most important indicators from the point of view of financial management are the following indicators: The ownership ratio characterizes the share of equity capital in the company's capital structure, and, consequently, the relationship between the interests of the owners of the enterprise and creditors. As a rule, the normal ratio that ensures a fairly stable financial position, all other things being equal, in the eyes of investors and creditors, is the ratio of equity to total funds at 60%. The gearing ratio reflects the share of borrowed capital in sources of financing. This coefficient is the inverse of the property coefficient. The financial dependence ratio characterizes the firm's dependence on external loans. The higher the indicator, the more long-term liabilities the company has and the riskier the current situation, which can lead to bankruptcy of the company, which must pay not only interest, but also repay the principal amount of the debt. A high level of the ratio also means the potential danger of a cash shortage for the company. In general, this coefficient should not exceed one. High dependence on external loans can significantly worsen the position of our enterprise in the context of a slowdown in sales, since the cost of paying interest on borrowed capital is a constant expense, which, other things being equal, the company will not be able to reduce in proportion to the decrease in sales volume. Based on the data from OJSC MPZ (Appendix), we will compile Table 8 and calculate these coefficients. Note - Source: own development Conclusion: in OJSC MPZ there is a significant excess of equity capital over borrowed capital, which increases even more in 2011, which indicates a fairly stable financial position of the enterprise. investment profitability creditworthiness financial 2.1.3 Analysis of the creditworthiness of the enterprise The creditworthiness of a business entity means that it has the prerequisites to receive a loan and repay it on time. The borrower's creditworthiness is characterized by his accuracy in making payments on previously received loans, current financial condition and ability, if necessary, to mobilize funds from various sources. The bank, before providing a loan, determines the degree of risk that it is willing to take on and the size of the loan that can be provided. Analysis of lending conditions involves studying: ) “Solidity” of the borrower, which is characterized by the timeliness of payments for previously received loans, the quality of the reports submitted, the responsibility and competence of management. ) The borrower’s “ability” to produce competitive products. ) "Income". At the same time, an assessment is made of the profit received by the bank when lending to specific costs of the borrower, in comparison with the average profitability of the bank. The level of bank income must be linked to the degree of risk in lending. The bank evaluates the amount of profit received by the borrower from the point of view of the possibility of paying interest to the bank while carrying out normal financial activities. ) “Goals” for using large resources. ) “Amounts” of the loan. This study is carried out on the basis of the borrower’s balance sheet liquidity measures and the ratio between equity and borrowed funds. ) "Repayments". This study is carried out by analyzing the repayment of the loan through the sale of material assets, provided guarantees and the use of collateral rights. ) “Securing” the loan, that is, studying the charter and regulations from the point of view of determining the bank’s rights to take the borrower’s assets, including securities, as collateral for the loan issued. When analyzing creditworthiness, a number of indicators are used. The most important are: rate of return on invested capital and liquidity. The rate of return on invested capital is determined by the ratio of the amount of profit to the total amount of liabilities on the balance sheet: Where P is the rate of profit; P - amount of profit for the reporting period (quarter, year), rub.; Total amount of liabilities, rub. The growth of this indicator characterizes the trend of the borrower’s profitable activity and its profitability. The liquidity of a business entity is its ability to quickly repay its debt. It is determined by the ratio of the amount of debt and liquid funds, that is, funds that can be used to pay off debts (cash, deposits, securities, sellable elements of working capital, etc.). Essentially, the liquidity of a business entity means the liquidity of its balance sheet. Balance sheet liquidity is expressed in the degree to which the obligations of an economic entity are covered by its assets, the period of transformation of which into money corresponds to the period of repayment of obligations. Liquidity means the unconditional solvency of a business entity and presupposes constant equality between assets and liabilities, both in total amount and in terms of maturity. Analysis of balance sheet liquidity consists of comparing assets, grouped by the degree of their liquidity and arranged in descending order of liquidity, with liability obligations, grouped by their maturity and in ascending order. Depending on the degree of liquidity, that is, the speed of conversion into cash, the assets of a business entity are divided into the following groups: A 1 - the most liquid assets. These include all funds of a business entity (cash and in accounts) and short-term financial investments (securities). A 2 - quickly realizable assets. This includes accounts receivable and other assets. And 3 - slowly selling assets. These include the articles of Section II of the asset “Inventories”, with the exception of the article “Deferred expenses”, as well as the article “Long-term financial investments” from Section I of the asset. And 4 - difficult to sell assets. These are “Fixed assets”, “Intangible assets”, “Construction in progress”. Balance sheet liabilities are grouped according to the degree of urgency of payment: P 1 - the most urgent liabilities. These include accounts payable and other liabilities. P 2 - short-term liabilities. They cover short-term loans and borrowings. P 3 - long-term liabilities. This includes long-term loans and borrowed funds. P 4 - permanent liabilities. They include items from section IV of the liability “Capital and reserves”. To maintain the balance of assets and liabilities, the total of this group is reduced by the amount of the item “Deferred expenses”. To determine the liquidity of the balance sheet, you should compare the results of the given groups for assets and liabilities. The balance is considered absolutely liquid if: A 1 ³ P 1, A 2 ³ P 2, A 3 ³ P 3, A 4 £ P 4 The liquidity of a business entity can be quickly determined using the absolute liquidity ratio, which is the ratio of funds available for payments and settlements to short-term liabilities. Where K l is the absolute liquidity ratio of a business entity; D - cash (in cash, on a current account, in a foreign currency account, in settlements, other funds), rub.; B - securities and short-term investments, rub., K - short-term loans and borrowed funds, rub.; Z - accounts payable and other liabilities, rub. This coefficient characterizes the ability of a business entity to mobilize funds to cover short-term debt. The higher this ratio, the more reliable the borrower. Depending on the value of the absolute liquidity ratio, it is customary to distinguish: a creditworthy business entity with K l >1.5; limited creditworthiness with K l from 1 to 1.5; uncreditworthy at K l< 1,0. Based on the data of OJSC MPZ (Appendix), we will compile Table 9 and calculate the rate of return on invested capital and the absolute liquidity ratio of the enterprise. Note - Source: own development Conclusion: An increase in the rate of return on invested capital characterizes the trend in the profitable activity of the borrower and its profitability. At the same time, there is a decrease in the absolute liquidity ratio, which characterizes the enterprise as uncreditworthy. It should be kept in mind that all banks use credit scores. However, each bank forms its own quantitative assessment system, which constitutes a commercial secret of the bank, in the distribution of borrowers into three categories: reliable (creditworthy), unstable (limitedly creditworthy), unreliable (uncreditworthy). A borrower recognized as “reliable” is credited on general terms; in this case, preferential lending procedures may be applied. If the borrower turns out to be an “unstable” client, then when concluding a loan agreement, measures are envisaged to monitor the borrower’s activities and the repayment of the loan (guarantee, surety, monthly check of collateral, terms of collateral, increase in interest rates, etc.). If the loan applicant is recognized as an “unreliable” client, then lending to him is inappropriate. The bank can provide a loan only on special conditions stipulated in the loan agreement. The main reasons for the failure to ensure the liquidity and creditworthiness of a business entity are the presence of accounts receivable and, especially, unjustified debt, violation of obligations to customers, accumulation of excess production and inventory, low efficiency of economic activities, slowdown in turnover of working capital. 2.1.4 Analysis of the use of capital, business activity ratios of the enterprise Capital investment must be effective. The efficiency of capital use refers to the amount of profit per ruble of invested capital. Capital efficiency is a complex concept that includes the use of working capital, fixed assets, and intangible assets. Therefore, an analysis of the use of capital is carried out on its individual parts, then a consolidated analysis is made. Business activity ratios allow you to analyze how efficiently a company uses its funds. As a rule, these indicators include various turnover indicators, which are of great importance for assessing the financial position of the company, since the speed of turnover of funds, i.e. the speed of their conversion into monetary form has a direct impact on the solvency of the enterprise. In addition, an increase in the rate of turnover of funds, other things being equal, reflects an increase in the production and technical potential of the company. ) The efficiency of using working capital is characterized, first of all, by their turnover. The turnover of funds refers to the duration of passage of funds through individual stages of production and circulation. The time during which working capital is in circulation, i.e., sequentially moving from one stage to another, constitutes the period of turnover of working capital. The duration of one turnover in days is the ratio of the amount of the average balance of working capital to the amount of one-day revenue for the analyzed period: where Z is the turnover of working capital, days; is the average balance of funds, rub.; is the number of days of the analyzed period (90.360); is revenue from sales of products for the analyzed period, rub. The average balance of working capital is defined as the average of a chronological instant series, calculated from the totality of the indicator values at different points in time: O = 0.5 O 1 + O 2 +…+0.5 O p / (P - 1) , (25) where O 1, O 2, O n - the balance of working capital on the first day of each month, rub.; P - number of months. The capital turnover ratio characterizes the amount of revenue from sales per one ruble of working capital. It is defined as the ratio of the amount of revenue from product sales to the average balance of working capital according to the formula: where K 0 - turnover ratio, turnover; - revenue from sales of products for the analyzed period, rub.; O - average balance of working capital, rub. The capital turnover ratio is the capital productivity of working capital. Its growth indicates a more efficient use of working capital. The turnover ratio simultaneously shows the number of turnovers of working capital for the analyzed period and can be calculated by dividing the number of days of the analyzed period by the duration of one turnover in days (turnover in days): where K 0 - turnover ratio, revolutions; - number of days of the analyzed period (90, 360); Z - turnover of working capital in days. 2) The efficiency of using fixed assets is measured by indicators of capital productivity and capital intensity. The capital productivity of fixed assets is determined by the ratio of the volume of revenue from sales of products to the average cost of fixed assets: Where F is capital productivity, rub.; is the volume of revenue from sales of products, rub.; C - average annual cost of fixed assets, rub. The average annual cost of fixed assets is determined for each group of fixed assets, taking into account their commissioning and disposal. The capital intensity of production is the reciprocal of capital productivity. It characterizes the costs of fixed assets advanced per ruble of revenue from product sales. Where F e - capital intensity of production, rub.; C - average annual cost of fixed assets, rub.; - volume of revenue from sales of products, rub. A decrease in the capital intensity of products indicates an increase in the efficiency of use of fixed assets. The capital productivity indicator is closely related to labor productivity and capital-labor ratio, which is characterized by the cost of fixed assets per employee. We have: V = V / H, (30) F V = S / H, (31) = V * H, (32) C = F V * H, (33) F = V / C = V * H / F V * H = V / F V, (34) Where B is labor productivity, rub., N - number of employees, people, Ф В - capital-labor ratio, rub., F - capital productivity of fixed assets, rub. ) The efficiency of use of intangible assets is measured, like the use of fixed assets, by indicators of capital productivity and capital intensity. ) Efficiency of capital use in general. Capital as a whole is the sum of working capital, fixed assets, and intangible assets. Efficiency in the use of capital is best reflected by its profitability. The level of return on equity is measured as a percentage of book profit to capital. The level of return on capital can be expressed by the following formula characterizing its structure: where R is the level of return on capital, %; P - balance sheet profit, rub., K 0 - working capital turnover ratio, revolutions; F - capital productivity of fixed assets, rub.; Fn - capital productivity of intangible assets, rub. The formula shows that the level of return on capital is directly dependent on the level of book profit per one ruble of revenue, the working capital turnover ratio, capital productivity of fixed assets, and capital productivity of intangible assets. An analysis of the influence of these factors on the level of return on capital is determined using the method of chain substitutions. 2.1.5 Analysis of the level of self-financing of the enterprise Self-financing means financing from your own sources: depreciation charges and profits. The principle of self-financing is implemented not only on the desire to accumulate one’s own financial sources, but also on the rational organization of the production and trading process, the constant renewal of fixed assets, and a flexible response to market needs. It is the combination of these methods in the economic mechanism that makes it possible to create favorable conditions for self-financing, i.e. allocating more of its own funds to finance its operating and capital needs. The level of self-financing is assessed using the following coefficients: ) Financial stability coefficient (K y) is the ratio of one’s own and other people’s funds: where M is own funds, rub.; K - accounts payable and other borrowed funds, rub.; Z - borrowed funds, rub. The higher the value of this coefficient, the more stable the financial position of the business entity. The sources of formation of own funds are the authorized capital, additional capital, deductions from profits (to the accumulation fund, to the consumption fund, to the reserve fund), targeted financing and revenues, lease obligations. ) Self-financing coefficient (K s): where P is profit directed to the accumulation fund, rub.; A - depreciation charges, rub.; K - accounts payable and other borrowed funds, rub.; Z - borrowed funds, rub. This coefficient shows the ratio of sources of financial resources, i.e. How many times do own sources of financial resources exceed borrowed and attracted funds aimed at financing expanded reproduction? The self-financing coefficient characterizes a certain margin of financial strength of an economic entity. The higher the value of this coefficient, the higher the level of self-financing. When the self-financing ratio decreases, the business entity carries out the necessary reorientation of its production, trade, technical, financial, organizational, managerial and personnel policies. ) Coefficient of sustainability of the self-financing process (K): The sustainability coefficient of the self-financing process shows the share of own funds allocated to finance expanded reproduction. The higher the value of this coefficient, the more stable the process of self-financing in an economic entity, the more effectively this method of a market economy is used. ) Profitability of the self-financing process (P): where PE is net profit, rub. The profitability of the self-financing process is nothing more than the profitability of using one’s own funds. Level R shows the amount of total net income received from one ruble investment of one’s own financial resources, which can then be used for self-financing. The excess of own funds over borrowed and attracted funds shows that the business entity has a sufficient margin of financial stability and the financing process is relatively independent of external financial sources. The financial stability coefficient of MPZ OJSC was calculated above. Based on the data of OJSC MPZ (Appendix), we will compile Table 10 and calculate the remaining coefficients characterizing the level of self-financing of the enterprise. Modern companies operate in difficult conditions. On the one hand, the political situation in the country influences, and on the other, economic instability. As a result, fierce competition develops, where each company, large or small, fights for its place in the sun, using a wide variety of ways and methods to increase the company's rating in the general list of reliable and stable companies. In economic theory, several definitions are given to the concept of investment attractiveness. On the one hand, it is a financial and economic indicator, and on the other, a set of qualitative and quantitative characteristics that express assessments of the external environment and the factors of its influence on the company. All parameters can be divided into two groups: There is no clearer definition of this concept, and the only advice that can be given to determine at what stage and level the company’s investment attractiveness is is to ask questions about where, when and in what volume an investor can invest his funds in order to be guaranteed to make a profit. Researchers and scientists reduce the determination of a company's attractiveness, from an investment point of view, to the application of the simplest ranking methods based on research conducted and expert assessments. In other words, the higher the company's assessments regarding its activities, the more attractive it will be from an investment point of view for people who want to increase their capital. Most experts equate the attractiveness of a company from an investment point of view with the evaluation of investment projects. There are a number of indicators that characterize any company and which should be relied upon when assessing its performance. We are talking about the following points: Each of the indicators plays a large role in the development of the enterprise, and together it is precisely what determines the investment attractiveness of the company and allows us to assess its functioning in the market. Based on the criteria for assessing the activities of any company discussed above, we can offer ten possible ways to increase the investment attractiveness of any company. So, let's begin. Method No. 1 – Increasing the stability of an enterprise in the production sector It should be noted that the use of all available resources in an enterprise is the key to success. If only five machines are working in a production workshop, and five more are idle, then the actual wear and tear of the first ones will increase, and the second ones will sooner or later rust. On the other hand, production must be organized so that the manufactured products do not gather dust in a warehouse, but are immediately sent for sale. In other words, the company’s work in this direction must be clearly balanced. The company must produce exactly as many products as they buy from it and quickly respond to increases or decreases in demand. Method No. 2 – Ensure the commercial success of the company Only successful companies are always at the top of the popularity ratings and can qualify for additional cash income in the form of investment. As a rule, investors, when deciding whether or not to give money for the development of a company, pay great attention to this factor. Method No. 3 – Maintaining financial stability of the enterprise To be able to receive additional funds for the development of the company from investors, you need to confirm your stable financial position. For this purpose, several rules must be followed at once. On the one hand, the company should not have large debts (for example, for wages or to the bank), and on the other, operating costs should be minimized. Method No. 4 – Properly organize the management of the company If you do not know how to increase the investment attractiveness of a company, then first of all pay attention to how the enterprise is managed. How expedient is the presence of certain departments, as well as the possible absence of some units of the general management structure. This will allow employees to use their working time more efficiently, and therefore make the company more successful. Method No. 5 - Development of an incentive system for enterprise employees In order for employees to fulfill all their duties in full and work at the enterprise with pleasure, it is necessary to develop an incentive system that will allow them to grow up the career ladder and receive a decent salary. Method No. 6 – Ensuring timely implementation of innovative technologies It is extremely important to ensure that the products offered by the company on the market are innovative, advanced and of high quality. For this to happen, it is necessary to constantly maintain a high level of equipment available at the enterprise, and also to hire only highly qualified employees. Method No. 7 – Achieve the maximum possible reduction in the tax burden This point is very important, as it will allow the company to spend less money on paying mandatory tax contributions and fees. To do this, it is worth switching to a more favorable taxation system, taking into account the activities that the company carries out. Method No. 8 – Take a high place in a competitive environment In this case, we are talking about having an experienced expert in the company who can analyze the activities of other companies and determine their advantages and disadvantages. In other words, marketing plays an important role in the development of any company. Method number 9 – Provide material resources All equipment and property must be in working order. In addition, it is advisable to purchase your own premises for production, rather than rent a factory and pay large sums to the owner. Method No. 10 – Attracting partners and expanding the scope of activities And the last thing that needs to be done is to find a reliable partner who does not want to engage in production activities, but is ready to invest the funds necessary for the development of the company. Read more about how to compose correctly in our article! High investment attractiveness is a key factor in increasing the competitiveness of the region and ensuring high and sustainable rates of economic growth. Measures to increase investment attractiveness are one of the main sections for the implementation of developed strategies and programs for the socio-economic development of Russian regions.
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How is the concept of investment attractiveness defined?
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How to increase the investment attractiveness of an enterprise - 10 possible ways
In the practice of our company, this range of issues was relevant when developing the development strategy for the Lipetsk region, the socio-economic development program for the Kursk region; currently, issues of increasing investment attractiveness are among the priorities when developing the development strategy for the Altai Territory.
We are currently working on a program for the development of international and interregional cooperation in the Krasnodar Territory, one of the key tasks of which is to increase the efficiency of attracting foreign investment to finance projects in the region. In the course of our cooperation with the Krasnodar Territory, significant attention was paid to the tasks of increasing the investment attractiveness of the region when developing a strategy for the development of the construction complex and the region as a whole. The tasks of increasing investment attractiveness are also relevant for other sectors of the economy and social sphere of the region. Their solution will create one of the most important institutional conditions for the development of these industries, for effective cooperation between state and municipal authorities and business. Therefore, one of the most important points in the region’s development strategy is the development of a comprehensive program to increase the investment attractiveness of the Krasnodar region.
To provide methodological support for the formation of such a program, the consulting group ROEL Consulting has developed a model of a comprehensive program for increasing the investment attractiveness of the territory, which includes not only actions to promote the region, but also a set of practical measures for the selection and initiation of investment projects, and the creation of investment support infrastructure. The technology for implementing such a set of measures was developed during our many years of work in the Vladimir region.
The program to increase investment attractiveness will allow:
understand the situation with current investment activity in the region, assess the factors that promote and hinder investment activity;
assess investment potential and investment risks;
highlight priority areas of investment;
develop an action plan to create an infrastructure to support investment activities;
organize the attraction of investment resources.
The ROEL Consulting group assessed potential consumers of a modern program to increase investment attractiveness among the constituent entities of the Russian Federation, large cities and municipalities. As the analysis showed, among the potential customers of the product are 67 out of 86 subjects of the Federation, 82 out of 88 large cities, and about 200 municipal districts.
Here is a brief summary of the layout of the program for increasing the investment attractiveness of a territory (region, municipality) developed by CG ROEL Consulting.
1. Diagnostics of the socio-economic development of the territory.
2. Forecasts and scenarios for the development of the territory.
3. Priority areas for increasing the investment attractiveness of the territory.
4. List of measures to increase the investment attractiveness of the territory.
5. Target indicators for program implementation.
6. Resource support for program implementation.
7. Organization of program management.
8. Monitoring of program implementation.
As part of the diagnostics of the socio-economic development of the territory, an assessment of the economic and geographical position, spatial organization of the population and economy is carried out, the main trends in the development of the region are considered, and an analysis of the external environment is carried out.
The level of investment attractiveness of a territory is determined by a combination of factors, on the one hand, promoting investment activity, and on the other, hindering it.
The investment attractiveness of a territory is formed by 4 blocks of factors:
investment potential;
investment risk;
investment activity;
investment climate.
Investment potential is assessed based on a set of “private” types of potential: resource and raw materials, production, infrastructure, innovation, labor and others.
The program assesses such components of investment risk as: economic, social, criminal, environmental, financial and legislative.
Investment activity characterizes the intensity and scale of investment activity in the territory.
The investment climate within the framework of the developed program to increase investment attractiveness refers to the conditions for the use of investments in the economy, in particular:
regulatory framework;
tax regime;
institutional conditions for investment activity, the availability of investor support infrastructures;
level of administrative barriers, etc.
The section of the program that determines promising areas of investment in the regional economy includes an assessment of promising industries and sectors of the economy from the point of view of investment, selection and initiation of investment projects in these industries, and work with target investors.
The most promising sectors of the economy for investment will be determined based on an analysis of the capacity and profitability of sales markets, expected costs and the availability of necessary resources.
A new important block of the program is a section devoted to the issue of selection and initiation of investment projects in promising sectors of the economy. This section analyzes market opportunities in promising sectors of the regional economy, selects existing investment projects and evaluates their effectiveness, and develops new business projects.
One of the main differences between the layout of the program for increasing the investment attractiveness of a territory, developed by CG ROEL Consulting, and similar programs existing on the market is a seriously developed block for working with target investors. This section identifies target investors in promising business areas. Existing promising business ideas will be translated into investment proposal format for potential investors. It is planned to develop possible schemes for financing investment projects and prepare proposals to increase the share of state participation in them, including through the mechanism of public-private partnership.
As part of the work to create a favorable environment for development and attracting investment and economic development, proposals will be developed for:
reducing the main investment risks;
development of a regulatory framework that will facilitate investment attraction;
institutional events.
The development of a regulatory framework that will help attract investment in promising industries will include an action plan for the development and adoption of the necessary legislative acts and policy documents.
Institutional measures to increase investment attractiveness involve the creation of an infrastructure to support investment activity. In particular, there must be created
investment development agency;
regional investment fund;
regional venture fund;
municipal collateral companies and regional collateral investment companies;
unified investment distribution network;
investment project support system;
PR service for investment purposes.
Organizing the management of a program to increase investment attractiveness involves the development of a management scheme for the implementation of the program and an organizational schedule.
The comprehensive nature of the program to increase investment attractiveness provides the following advantages of its use as a regional management mechanism:
interdepartmental and intersectoral nature (covers key sectors of the real sector of the economy and the social sphere; allows you to combine the efforts of industry divisions and divisions of the general economic block of regional administrations; provides connections with other programs);
ensures consistency with the strategic actions of federal ministries and departments;
ensures the integration of activities at different levels (federal, interregional, regional, municipal);
includes federal targeted program activities implemented in the region, national projects, interregional and international programs, strategic investment projects, institutional events.
Returning to the prospects for cooperation with the Krasnodar Territory, we will outline a range of activities that, in our opinion, could complement the development of a comprehensive program to increase investment attractiveness or be part of this program.
1. Implementation of a training program for municipal specialists on the development and implementation of investment strategies of municipalities.
2. Formation of land collateral investment funds at the municipal level as a mechanism for increasing the investment attractiveness of the region. Improving the quality of state property management in the region.
3. Development of a strategy for the development of tourism in the Krasnodar region, in which significant attention will be paid to the issues of creating conditions for attracting investment in the development of tourism infrastructure.
4. Implementation of proposals from the English company Mabey & Johnson for the construction of quickly installed bridges, steel viaducts and other structures.
The ROEL group acts in the Krasnodar region not only as a consultant, but also as an investor, currently implementing a project to reform DSK No. 1, one of the largest enterprises in the region’s construction industry.
In conclusion, we note that the development of a program to increase the investment attractiveness of the region will make it possible to improve the investment climate of the region, select existing investment projects and initiate new projects with a high level of commercial efficiency, and attract the necessary investment resources to promising sectors of the economy.
Thus, the program to increase investment attractiveness will ensure the implementation of regional strategic development priorities.