1.

Сущность, цели и задачи финансового менеджмента (The economic

essence, tasks and objectives of financial management)
The essence of financial management.
Financial management is an important part of management, or a form of managing business
finance processes.
 Financial management, or enterprise finance management, means the management of
funds, financial resources in the process of their formation, distribution and use in order
to obtain the optimal end result.
 Financial management is financial management of an enterprise aimed at optimizing
profits, maximizing the share price, maximizing business value, net earnings per share,
dividend level, net assets per share, as well as maintaining the competitiveness and
financial stability of an economic entity.
 Financial management as a science of financial management is aimed at achieving the
strategic and tactical goals of an economic entity.
Financial management as a management system consists of two subsystems:
1) controlled subsystem (object of control)
2) control subsystem (subject of control).

Financial management implements a complex system of managing the aggregate value of all
funds involved in the reproduction process and capital that provides financing for
entrepreneurial activity.

The object of management is a set of conditions for the implementation of monetary

circulation and cash flow, value circulation, movement of financial resources and financial
relations that arise in the internal and external environment of the enterprise. Therefore, the
following elements are included in the control object:
 Money turnover;
 Financial resources;
 Circulation of capital;
 Financial relations.

The subject of management is a set of financial instruments, methods, technical means, as well
as specialists, organized in a certain financial structure, who carry out the purposeful
functioning of the controlled object. The elements of the subject of management are:
 Personnel (trained personnel);
 Financial instruments and methods;
 Technical controls;
 Information support.

The goal of financial management is to develop certain solutions to achieve optimal end results
and find an optimal balance between short-term and long-term goals of enterprise
development and decisions made in current and future financial management.

The main goal of financial management is to ensure the growth of the well-being of the
owners of the enterprise in the current and future period. This goal gets concrete expression in
ensuring the maximization of the market value of a business (enterprise) and realizes the
ultimate financial interests of its owner.
Tasks solved with the help of fin management: - current; - strategic.

Financial strategic objectives - maximizing the company's profit, ensuring the investment
attractiveness of the enterprise, ensuring financial stability in the long term.
Current goals (tasks) - ensuring a balance of cash flows (solvency and liquidity of the
enterprise), ensuring a sufficient level of profitability and sales through a flexible pricing policy
and cost reduction. This also includes avoiding bankruptcy and major financial setbacks.

All tasks are closely related to each other, and are solved within the financial policy of the
enterprise.

Financial policy consists of the following elements (parts):

1.accounting policy;
2. credit policy - policy in relations with banks, or in relation to loans in general;
3. policy in relation to cost management (cost regulation method, cost classification, share of fixed costs
in the cost price);
4. tax policy and tax planning (it is necessary to minimize tax payments but not to the detriment of other
areas, industries);
5. dividend policy;
6. cash management policy (including current assets);
7. investment policy (the most effective from a financial point of view).

The main tasks of financial management:

 Ensuring the formation of a sufficient amount of financial resources in accordance
with the needs of the enterprise and its development strategy.
 Ensuring the efficient use of financial resources in the context of the main areas of the
enterprise.
 Optimization of cash flow and settlement policy of the enterprise.
 Profit maximization with an acceptable level of financial risk and favorable taxation
policy.
 Ensuring a permanent financial balance of the enterprise in the process of its
development, i.e. ensuring financial stability and solvency.

In practice, financial management makes decisions on calculating the profitability of a possible

investment and choosing a long-term investment project.

2. Базовые принципы и концепции финансового менеджмента (Basic

concepts of financial management)
In modern management practice, the following basic principles of financial management have
been developed:
☝ priority of the strategic development goals of the enterprise (organization, commercial
structure);
☝ communication with the general enterprise management system;
☝ compulsory allocation of financial and investment decisions in financial management;
☝ building and maintaining the financial structure of the enterprise;
☝ separate management of cash flow and profit;
☝ a harmonious combination of the company's profitability and increased liquidity;
☝ variability and complex nature of the formation of management decisions;
☝ high dynamism of management.

Financial management is based on several fundamental concepts (a way of understanding and

interpreting a phenomenon), such as cash flows; compromise between risk and return; present
value; temporary value; alternative profitability; the hypothesis of market efficiency, concept
of agency conflicts. There are also well-known concepts of temporary unlimited functioning
of the organization and organization life cycle concept.

The main content of the concept of cash flows is the issues of attracting cash flows,
identification of cash flow, its duration and type; assessment of the factors that determine the
size of its elements; selection of the discount rate; an assessment of the risk associated with
this flow.
The general approach to determining the company's cash flows is presented below:

1) OCF = EBIT * (1-T) + D&A - WCR

where,

OCF - operating cash flow;

EBIT - profit before interest and taxes;
T - income tax rate;
D&A - depreciation and wear;
WCR is the need for working capital.

2) FCF = OCF - Capex + SV

where,

FCF - free cash flow;

Capex - capital expenditures for the formation of fixed assets and intangible assets;
SV is the residual value.

The concept of a trade-off between risk and return is based on the fact that making any kind of
return in a business is always risky. The relationship between these interrelated characteristics
is directly proportional: the higher the required or expected return, the higher the degree of
risk associated with the possible non-receipt of this return.
The concept of the present value describes the patterns of business activity of the enterprise
and explains the mechanism of capital growth. Every day, an entrepreneur is forced to manage
a variety of transactions for the sale and purchase of goods (products), services, investment
funds. In this regard, the manager needs to determine how appropriate it is to perform these
operations, whether they will be effective.
The concept of time value states that the currency available today is not the same as the
currency available over time. This is due to the effect of inflation, the risk of not receiving the
expected amount and turnover.
Alternative profitability
Since in a market economy there is a wide variety of financial instruments, the financial
manager always has the opportunity to choose between various objects of capital investment.
Income not received as a result of refusal to participate in some operation that has minimal risk
and minimal, but at the same time, guaranteed profitability should be taken into account as an
opportunity cost when making any decisions related to the use of the company's financial
resources. The alternative rate of return is also used as a rate that characterizes the minimum
acceptable return on a company's investment.
Very often, the refinancing rate of the Central Bank is used as the alternative yield rate, if the
company has no reason to choose any other value for this purpose.

Market efficiency
The financial market has the property of efficiency if it gives an adequate assessment of the
assets circulating on it. Those. market efficiency is characterized by the level of its information
saturation and equal availability of available information to all market participants. In an
efficient market, no investor can get a higher income than the market average due to the
additional information he has. Prices for market instruments correspond to the expected cash
flows for them, any deviations level out rather quickly.
The concept of agency conflicts.
Companies, to one degree or another, have a gap between the ownership function and the
management and control function; therefore, the interests of the company owners and
management may not coincide. For this reason, the owners are forced to bear agency costs -
additional costs incurred for building agency relations and leveling agency conflicts.
The concept of temporary unlimited functioning of the organization
It means that the company once emerged will exist forever. It is clear that this is conditional,
the point is that when founding a company, its owners proceed from long-term strategic
guidelines.
Organization life cycle concept.
The development of a company is influenced by age, company size, industry growth rates, and
crises. The stages of company development are distinguished: [18, p. 65]
1) the emergence of a business idea and its creation as a source of income
2) entrepreneurial (childhood)
3) rapid growth (adolescence)
4) maturity
5) leaving the market (death).

3. Финансовые цели и их связь с корпоративной стратегией (Financial

aims and their interconnection with corporate strategy)
Financial goals can vary greatly depending on the particular stage of the business cycle. There
are three business stages:
  Growth
 Steady state
 Return on investment

Consequently, the financial goals are different at each of these stages. The first is the growth of
sales of new products and services in new markets and new customers while maintaining an
adequate level of costs for the production of a product and its development, systems,
personnel and the organization of new market segments, as well as sales and distribution
channels. In the second stage, these are traditional financial indicators such as ROE, operating
income and gross profit. Investment projects are assessed according to the standard:
discounted cash flow indicator and capital budget analysis. Some companies are adopting new
financial dimensions, such as creating added value and value for shareholders. These are the
criteria for assessing the achievement of the classic financial goal - the maximum return on
capital invested in business. The financial goal of the third stage is cash flow. Any investment of
capital should have the fastest and most concrete return. The metrics related to accounting
(ROI, value added and operating income) are not so significant for the large investments
already made in this business. The goal is not to maximize return on investment, which may
actually inspire managers to look for new investment sources with a future return on
investment. Rather, the goal is to maximize the return to the company of cash flow from all the
funds invested in it in the past. The third stage is a fairly short period in the life of a company,
so there is no question of spending on research, development or capacity building.

4. Концепция временной стоимости денег, сущность (The concept of

time value of money)
Time value of money concept.
(!! ТОЧНО ИЗ КНИГИ, НУЖНО МЕНЯТЬ) From the standpoint of financial management, the
same amount of money has different values for the company at different points in time. First,
money is depreciated as a result of inflation. Secondly, and this is the most important thing,
capital must "work"; bring a certain income after a certain period of time. Finally, the longer is
the expected date of receipt of the amount of money, the higher the risk of possible non-
payment. Thus, the current financial equivalent of the future amount of money turns out to be
the lower, the higher the inflation rate and the required profitability of the financial transaction
and the longer the period of receipt of this amount. The timing aspect must be taken into
account when planning, analyzing and assessing future cash flows, assessing the effectiveness
of capital investments and in all other cases when it is necessary to compare monetary amounts
related to different points in time.
The concept of the time value of money is implemented in financial management through the
tool of financial mathematics, also called the mathematical foundations of financial
management.
(не из книги vvv)
The concept of the time value of money, its essence and use
The concept of the time value of money is considered basic in financial management. It is
based on the idea that the simplest type of financial transaction is a one-time loan of a sum of
money (PV) with the condition that after some time the increased amount (FV) will be
returned, i.e., as a result of investments, the amount of money increases otherwise the
financial sense of this operation for the investor disappears. This increase in monetary value
can be calculated in the following ways:

rt = (FV - PV) / PV
OR
dt = (FV - PV) / PV,
where,
r t is the growth rate (interest rate or yield);
d t - rate of decline (discount).
Both rates are interconnected with each other: r t = d / (1 - d,) or d t = r t / 1 + r ..
Accumulation process - a process in which the initial amount, interest rate is set. Its effective
value is the accrued amount, and the rate used in the operation is the accrual rate.
The discounting process is a process in which the expected in the future to be received
(returned) amount and rate are specified. The desired process value is the reduced amount,
and the rate used in the operation is the discount rate.
The meaning of a financial transaction, reflected in the formulas, is to determine the investor
at the end of this transaction. Since FV = PV + PVr t and PVr,> 0, it is obvious that time
generates money. The value / equal to the difference between FV and PV is called the
percentage. It represents the amount of income from lending money. FV shows the future
value of today's PV at a given rate of return. Since money is characterized by time value, the
conclusion about the feasibility of financial investments can be made by assessing future
receipts from the standpoint of the current moment. The basic calculation formula is as
follows:

РV = Fn / (1 + r) n = F n FM 2 (r, n)
where,
F " is the income planned to be received in a year, n;
r is the discount rate;
FM 2 (r, n) is the discount factor for a single payment.
The FM factor 2 (r, n) is tabulated or can be easily calculated using a financial calculator. It
shows the current price of one future currency.

From the point of view of FM, the same amount of money has a different value for the
company at different points in time. First, money is depreciated as a result of inflation.
Secondly, capital must "work", i.e. bring a certain income after a certain period of time. Thirdly,
the more distant the expected date of receipt of the sum of money, the higher the risk of
possible non-payment. Thus, the higher the inflation rate and the required profitability of the
financial transaction, and the longer the term of the received amount, the lower the current
financial equivalent of the future money amount is. The timing aspect must be taken into
account when planning, analyzing and assessing future cash flows, evaluating the effectiveness
of capital investments, and in all other cases when it is necessary to compare monetary
amounts related to different points in time.
Calculating the value of money
In financial calculations, money from different periods is reduced for the correctness of
calculations to one certain period: future or present using discounting. That is, they recalculate,
for example, the value of the present amount, taking into account the discount rates for the
desired period of time, and hypothetically obtain the same amount in the future time.
To make the appropriate calculations, two values are entered:
- present value PV - price of the amount in the present; is the future value of FV.
Calculations of each cost are made, respectively, for the current moment and for the future (at
the end of the accounting period). The discount rate that underlies the calculations can be
minimal (this is usually the refinancing rate, interest on bonds that are considered the most
risk-free, bank deposits) or complex, depending on the profitability of investment projects. A
certain amount N, being invested, after a certain period of time will become the amount N + i (i
is the percentage of the amount N). FV = P + I = P + P x R x T

5. Концепция альтернативного дохода, сущность (The concept of

alternative return, its economic essence)
( !!!FROM BOOK: Alternative profitability

Since in a market economy there is a wide variety of financial instruments, the financial manager
always has the opportunity to choose between various objects of capital investment.
Income not received as a result of refusal to participate in some operation that has minimal risk and
minimal, but at the same time, guaranteed profitability should be taken into account as an
opportunity cost when making any decisions related to the use of the company's financial resources.
The alternative rate of return is also used as a rate that characterizes the minimum acceptable
return on a company's investment.
Very often, the refinancing rate of the Central Bank is used as the alternative yield rate, if the
company has no reason to choose any other value for this purpose.)
DONE, NOW FROM INET:

The concept of alternative income - income not received as a result of refusal to participate in
a transaction with minimal risk and minimum guaranteed return, should be taken into account
as an opportunity cost when making any decisions related to the use of the company's financial
resources. There is a possibility to choose between different objects of capital investment
associated with different levels of risk and rate of return.
The alternative rate of return is also used as a rate that characterizes the minimum acceptable
return on a company's investment. Often, the refinancing rate of the Central Bank of the
Russian Federation is used as an alternative yield rate.
The discount rate can also be determined by the formula of I. Fisher.

Rn = Rr + J inf + Rr * J inf
Rр = (Rn - Jinf) / (1+ Jinf)

where:
 Rn - nominal rate;
Rr - real rate;
J inf - annual rate of inflation growth.
(It is important to note that when using nominal income streams, the capitalization ratio (and its
constituent parts) should be calculated in nominal terms, and with real income streams - real. To convert
nominal income streams into real ones, the nominal value must be divided by the corresponding price
index, that is, the ratio of the price level for the year in which cash flows will arise to the price level of the
base period, expressed as a percentage.)

There are different types of discount rates. The commercial rate is usually determined with the
concept of alternative returns in mind. The project participants independently estimate their
own discount rate. True, in principle, an agreed approach is also possible, when all project
participants are guided by the commercial discount rate.
For projects of high social significance, the social discount rate is determined. It characterizes
the minimum requirements for the so-called social effectiveness of the implementation of an
investment project. It is usually installed centrally.
The budgetary discount rate is also calculated, reflecting the alternative cost of using
budgetary funds and established by the executive authorities of the federal, subfederal or
municipal level.
In each specific case, the level of decision-making depends on which budget finances the
investment project.

6. Концепция стоимости капитала, сущность (The concept of cost of

capital)
!!!!BOOK Capital cost
Any financial and economic activity requires constant capital investment. Direct investments
(capital investments) are required to maintain and expand the production process and increase
its efficiency, introduce new technologies and develop new markets. The source of investment
can be budgetary allocations, various kinds of loans, credits and loans, the organization's own
funds, share capital.
The cost of capital is the price a company pays to use it, i.e. annual expenses for servicing debts
to investors and creditors.
As a rule, the invested capital consists of several different sources, each of which has a certain
price for the company (interest on loans and borrowings, dividends to shareholders, etc.). The
total price of all capital is made up of the values of its individual components.
The concept of the cost of capital is one of the basic ones in the theory of financial
management. It is not limited to calculating the relative value of the total cash payments that
must be transferred to the owners who provided financial resources, but, most importantly, it
characterizes the level of return on invested capital that the company must provide in order not
to reduce its market value. !!!!!
The concept of the cost of capital, its essence and use
The concept of the cost of capital is a value that reflects the average cost of capital of a
company, is used in assessing future cash flows and characterizes the minimum acceptable
level of return on invested capital that a company must provide in order not to reduce its
market value.
The cost of capital is the price a company pays to use it, i.e. annual expenses for servicing
debt to investors or creditors. Any financial and economic activity requires constant capital
investment. The cost of capital is the price a company pays to use it, that is, the annual cost of
servicing debt to investors and creditors.

The cost of capital is understood as the income that investments must bring in order for them
to justify themselves from the investor's point of view. The cost of capital is expressed as the
percentage rate (or fraction of a unit) of the amount of capital invested in a business that the
investor should pay during the year to use his capital. An investor can be a creditor, owner
(shareholder) of an enterprise or the enterprise itself. It is usually considered that the cost of
capital is the opportunity cost, in other words, the income that investors expect to receive from
alternative investment opportunities with a constant amount of risk. Indeed, if a company
wants to raise funds, then it must provide income from them at least equal to the amount of
income that alternative capital investment opportunities can bring to investors.

As a rule, the invested capital consists of several different sources, each of which has a certain
price for the company (interest on loans and borrowings, dividends, etc.).

The main area of application of the cost of capital is the assessment of the economic
efficiency of investments. The discount rate used in the methods for evaluating the
effectiveness of investments, i.e. with the help of which all cash flows that appear in the
process of an investment project are brought to the present moment - this is the cost of capital
that is invested in the enterprise.
The following factors influence the cost of capital:
- the level of profitability of other investments,
- the level of risk of this capital investment,
- sources of financing.
This concept characterizes the level of return on invested capital that a company must
provide in order not to reduce its market value.

7. Информационная база финансового менеджмента (Informative basis

of financial management)

The financial management information base is a collection of external and

internal information obtained from various sources, which provides the
ability to effectively solve the tasks facing the financial manager and
achieve the goals set.

Specific indicators of this system are formed from external and internal
sources, which can be divided into the following groups:

• indicators characterizing the general economic development of the country

(used when making strategic decisions in the field of financial activities);
• indicators characterizing the conjuncture of the financial market (used
when forming a portfolio of long-term financial investments, making short-
term investments, etc.);
• indicators characterizing the activities of competitors and counterparties
(used in making operational management decisions);
• regulatory and regulatory indicators;
• indicators characterizing the financial condition and financial results of the
company (balance sheet, profit and loss statement);
• regulatory targets related to the financial development of the company.

Companies use a variety of financial instruments based on cash flow

management techniques.
Financial instruments are instruments through which companies can raise or
invest funds.
 A share is a share issue security that assigns a certain set of rights to
the holder (shareholder), including profit.
 A bond is a debt issue security that secures its holder the right to
guaranteed income, the amount and procedure for payment of which
the issuer determines upon issue, as well as to redemption of the par
value upon the expiration of the loan term.
 Bank loan - a cash loan issued by a bank for a specified period on
terms of repayment, payment and urgency.
 8. Финансовый механизм (Financial mechanism) Elements of the financial
mechanism:
forms of financial resources;

methods of their formation;

a system of legislative norms and standards that are used in determining the
income and expenses of the state;

organization of the budgetary system, enterprise finance and the securities market.

There are the following types of financial mechanisms:

Directive

Developed for financial relations in which the state is directly involved. Its scope
includes taxes, government credit, budget expenditures, budget financing,
organization of the budgetary structure and budget process, financial planning. In a
number of cases, it also applies to other types of financial relations that are of great
importance for the implementation of the entire financial policy (corporate
securities market), or one of the parties to these relations is an agent of the state
(finances of state enterprises).

Regulatory

Determines the basic "rules of the game" in a specific segment of finance that does
not directly affect the interests of the state. This type of financial mechanism is
typical for the organization of intraeconomic financial relations in private
enterprises. In this case, the state establishes a general procedure for the use of
financial resources.
9. Основные финансовые показатели деятельности компании (The main
financial ratios)
The main financial indicators of the enterprise in most cases include at least
the following: sales revenue, profit and the balance of cash flows of the
enterprise.

Sales revenue is the income received by the enterprise from the sale of
inventory items (work performed, services rendered) for a certain period of
time. This income can be expressed both in cash and in non-cash form.
Examples of non-cash proceeds - barter, offset of mutual claims, etc.

Profit is the difference between the proceeds from the sale of inventories
(work performed, services rendered) and all expenses that the company
incurred in the reporting period, including the cost of goods (work, services)
sold. This profit is tax deductible. The profit remaining after payment of due
taxes is called the profit remaining at the disposal of the enterprise.

The balance of cash flows is the difference between all funds received by the
company (cash, non-cash, in foreign currency, etc.), and all the funds paid
by the company for the reporting period.

The totality of the values of these indicators, as well as the tendency of their
changes, makes it possible with a high degree of reliability to judge the
efficiency of the enterprise, as well as the problems it has.

10.Рентабельность: понятие, основные показатели и их взаимосвязь.

Формула Дюпона (Profitability: the definition, main indicators and their
interconnection. The DuPont formula.)
– удачи, писать очень много!!!!
The DuPont formula is a calculation of the key performance indicator-return on equity
(ROE) - through three conceptual components: return on sales, asset turnover and
financial leverage.
 ROE (Dupont Formula) = (Net Profit / Revenue) * (Revenue / Assets) * (Assets /
Equity) = Return on Sales * Asset turnover * Financial leverage
The DuPont formula includes three factors that affect return on equity:

* operational efficiency (return on sales by net profit);

* efficiency of use of all assets ( asset turnover);
* leverage, equity to debt ratio (financial leverage);
In cases where the organization has an unsatisfactory return on equity, the Dupont
formula helps to identify which of the factors led to this result.
Profitability
Определение можно сократить, главное ratios (таблица для понимания
сколько их)
is an economic indicator that shows how efficiently resources are used: raw materials,
personnel, money and other tangible and intangible assets. You can calculate the
profitability of an individual asset, or you can calculate the profitability of the entire
company at once.
Profitability is calculated to predict profit, compare a company with competitors, or
predict the return on investment. Still, the profitability of the enterprise is estimated if
you are going to sell it: a company that brings more profit and at the same time spends
less resources is more expensive.
Profitability ratios - financial indicators that characterize the profitability of the
company. When using profitability indicators, one should pay attention to the fact that
the same term, often referred to as indicators based on the analysis of net profit, and the
indicators used in calculating profit before tax.

Margin ratios (Margin ratios represent the company’s ability to convert sales into profits
at various degrees of measurement.)
1) Gross profit margin
Gross profit m= total sales - COGS
– compares gross profit to sales revenue. This shows how much a business is
earning, taking into account the needed costs to produce its goods and services. A
high gross profit margin ratio reflects a higher efficiency of core operations, meaning
it can still cover operating expenses, fixed costs, dividends, and depreciation, while
also providing net earnings to the business. On the other hand, a low profit margin
indicates a high cost of goods sold, which can be attributed to adverse purchasing
policies, low selling prices, low sales, stiff market competition, or wrong sales
promotion policies.
2) EBITDA
EBITDA = Net Income + Interest Expense + Taxes + Depreciation & Amortization
Expense
stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It
represents the profitability of a company before taking into account non-operating
items like interest and taxes, as well as non-cash items like depreciation and
amortization. The benefit of analyzing a company’s EBITDA margin is that it is easy
to compare it to other companies since it excludes expenses that may be volatile or
somewhat discretionary. The downside of EBTIDA margin is that it can be very
different from net profit and actual cash flow generation, which are better indicators
of company performance. EBITDA is widely used in many valuation methods.
3) Operating profit margin
Operating Margin Formula = Operating Profit/Net Sales * 100
– looks at earnings as a percentage of sales before interest expense and income taxes are
deduced. Companies with high operating profit margins are generally more well-
equipped to pay for fixed costs and interest on obligations, have better chances to survive
an economic slowdown, and are more capable of offering lower prices than their
competitors that have a lower profit margin. Operating profit margin is frequently used to
assess the strength of a company’s management since good management can
substantially improve the profitability of a company by managing its operating costs.
4) Net profit margin
Net Profit Margin = Net Profit / Total Revenue
is the bottom line. It looks at a company’s net income and divides it into total revenue. It
provides the final picture of how profitable a company is after all expenses, including
interest and taxes, have been taken into account. A reason to use the net profit margin as
a measure of profitability is that it takes everything into account. A drawback of this
metric is that it includes a lot of “noise” such as one-time expenses and gains, which
makes it harder to compare a company’s performance with its competitors.
5) Cash flow margin –
Operating Cash Flow Margin = Operating Cash Flow / Sales
expresses the relationship between cash flows from operating activities and sales
generated by the business. It measures the ability of the company to convert sales into
cash. The higher the percentage of cash flow, the more cash available from sales to pay
for suppliers, dividends, utilities, and service debt, as well as to purchase capital assets.
Negative cash flow, however, means that even if the business is generating sales or
profits, it may still be losing money. In the instance of a company with inadequate cash
flow, the company may opt to borrow funds or to raise money through investors in order
to keep operations going.

Return assets (Return ratios represent the company’s ability to generate returns to
its shareholders)
1)Return on assets (Return on assets, ROA), %
Return on assets is a financial ratio characterizing the return on the use of all the assets of
the organization. The coefficient shows the organization's ability to generate profits
without taking into account the structure of its capital (financial leverage), the quality of
asset management. Unlike the indicator "return on equity", this indicator takes into
account all the assets of the organization, and not only its own funds.
Return on Assets = (Net Income / Assets) * 100%.
The return on assets is highly dependent on the industry in which the enterprise operates.
For capital-intensive industries (such as, for example, rail transport or electric power),
this indicator will be lower. For service companies that do not require large capital
investments and investments in working capital, the return on assets will be higher (0 ÷
0,100).
2)Return on invested capital (ROIC), %
The return on invested capital (ROIC) ratio is the ratio of the company's net operating
profit to the average annual total invested capital.
ROIC = NOPLAT / invested capital * 100%
where, NOPAT (Net operating profit less adjusted taxes): EBIT – profit Tax.
The ROIC indicator is often used as an indicator of the company's ability to generate
value added to other companies (benchmarking).
 A high (relatively) level of ROIC is seen as evidence of the company's strength and
strong management.
To assess the effectiveness of capital use, you should compare the return on invested
capital (ROIC), with its value (WACC).
3) Return on equity
Return on equity (ROE) is a measure of financial performance calculated by dividing net
income by shareholders' equity. Because shareholders' equity is equal to a company’s
assets minus its debt, ROE is considered the return on net assets. ROE is considered a
measure of the profitability of a corporation in relation to stockholders’ equity. Whether
ROE is deemed good or bad will depend on what is normal among a stock’s peers. A
good rule of thumb is to target an ROE that is equal to or just above the average for the
peer group.

11.Ликвидность: понятие, основные показатели и их взаимосвязь

(Liquidity analysis: the definition, main indicators and their
interconnection.)
Liquidity is the ability to convert assets into cash quickly and cheaply.
Liquidity ratios are most useful when they are used in comparative form.
This analysis may be internal or external.

Liquidity is an important class of financial indicators used to determine the

ability of a debtor to pay off current liabilities without attracting external
capital. Liquidity ratios measure a company's ability to pay off debt
obligations and its margin of safety by calculating metrics including current
ratio, quick ratio, and operating cash flow ratio.

Current liabilities are analyzed in relation to liquid assets to evaluate the

coverage of short-term debts in an emergency.
12.Виды денежных потоков по направлениям деятельности. (Types of
cash flows.)
The concept of "cash flow of the enterprise" is aggregated, which includes in
its composition numerous types of these flows serving economic activities.
In order to ensure effective targeted management of cash flows, they require
a certain classification. It is proposed to carry out such a classification of
cash flows according to the following main features:
1. By the scale of servicing the business process, the following types of cash
flows are distinguished:
• cash flow through the enterprise in a chain.
• cash flow for individual structural divisions (centers of responsibility) of
the enterprise.
• cash flow from individual business transactions.
2. By types of economic activities in accordance with international
accounting standards, the following types of cash flows are distinguished:
• cash flow from operating activities.
• cash flow from investment activities.
• cash flow from financing activities.
3. According to the direction of cash flow, there are two main types of cash
flows:
• positive cash flow, which characterizes the totality of cash inflows to the
company from all types of business transactions.
• negative cash flow, which characterizes the totality of cash payments by
the enterprise in the process of carrying out all types of its business
operations.
4. According to the method of calculating the volume, the following types of
enterprise cash flows are distinguished:
• gross cash flow.
• Net cash flow.
 5. According to the level of volume sufficiency, the following types of
enterprise cash flows are distinguished:
• excess cash flow.
• scarce cash flow.
6. According to the method of assessment in time, the following types of
cash flow are distinguished:
• real cash flow.
• future cash flow.
7. According to the continuity of formation in the period under review, the
following types of enterprise cash flows are distinguished:
• regular cash flow.
• discrete cash flow.
8. According to the stability of time intervals of formation, regular cash
flows are characterized by the following types:
• regular cash flow at regular time intervals within the period under review.
• regular cash flow at irregular time intervals within the period under review.

13.Структура капитала, направления ее влияния. (Capital structure.)

Capital structure - the ratio of own and borrowed funds used in the course of
their economic activities. The capital structure determines many aspects of
not only financial, but also operating and investment activities, and has an
active impact on the final results of these activities. As part of equity capital
should be considered not only its initially invested volume (share, share or
individual capital, which forms the authorized capital of the enterprise), but
also its part accumulated in the future in the form of various reserves and
trust funds, as well as the newly formed profit expected to be reinvested
( "undestributed profits"). Accordingly, borrowed capital should be
considered in all forms of its use by an enterprise, including financial
leasing, commodity (commercial) credit of all types, current settlement
obligations, and others.
 The analysis of the capital structure is aimed at assessing the financial
stability of the enterprise. Financial stability is the stability of the financial
position of an enterprise, provided by a sufficient share of equity capital as
part of funding sources.

14.Оценка риска, обуславливаемого структурой капитала. Первая

концепция финансового рычага. Сущность и методы расчета. (The risk
caused by capital structure. The first concept of financial leverage. The
economic essence and methods of calculations.)
One of the main indicators characterizing financial stability is the financial
activity ratio (leverage of financial leverage). In financial management, there
is a concept that allows you to determine the effectiveness of attracting
external sources (the effectiveness of financial leverage).

In the activities of commercial organizations, there are:

internal financing (profit)

external financing (loans, borrowings).

For each specific period of the company's activity when using external
borrowings, the financial manager must determine the limit to which
borrowed funds can be used, since exceeding them can lead to loss of
independence and nullify the effectiveness of raising borrowed funds.

Financial leverage which is also known as leverage or trading on equity,

refers to the use of debt to acquire additional assets.
The use of financial leverage to control a greater amount of assets (by
borrowing money) will cause the returns on the owner's cash investment to
be amplified. That is, with financial leverage:
 an increase in the value of the assets will result in a larger gain on the
owner's cash, when the loan interest rate is less than the rate of increase in
the asset's value.
a decrease in the value of the assets will result in a larger loss on the owner's
cash.
Ways of calculation:
European approach. The effect of financial leverage is understood as the
difference between the return on equity and the return on assets, that is, the
additional return on equity for the owner of equity that arises when raising
borrowed capital with a fixed interest.

American approach. The effect of financial leverage (force of influence) is

understood as the percentage change in the cash flow received by the owner
of equity capital with a one percent change in the total return on the asset.
The effect is that a slight change in total return leads to a significant change
in the cash flow received by the owner of equity.

15.Оценка риска, обуславливаемого структурой капитала. Вторая

концепция финансового рычага. Сущность и методы расчета. (The risk
caused by capital structure. The second concept of financial leverage. The
economic essence and methods of calculations)
The second concept of financial leverage. The effect of financial leverage is
a greater percentage change in the return on equity when the profit before
interest on borrowed funds and income tax changes when the company uses
borrowed funds to finance its activities.

The second concept more closely matches the meaning of the concept of
"lever" as a factor, a slight change in which causes a larger change in
another factor. In other words, the level of financial leverage DFL shows
how many percent the ROE will change when EBIT changes by 1%.
 The formula for determining the DFL value: EFR = Change in ROE in% /
Change in EBIT in% = EBIT / (EBIT - I),

where EBIT is profit before interest and income tax. I - the total amount of
interest paid for the use of borrowed funds.

For a company with a higher DFL, an increase in profit will bring a larger
increase in ROE. With a drop in profit, the shareholders of this enterprise
will suffer large losses - the effect of financial leverage, as in the first option,
acts in both directions

The level of financial leverage (using both concepts) reflects the level of
financial risk associated with a given entity:

- the risk of the company's insolvency increases from the point of view of
the creditor;

- the risk of falling dividends and share prices for shareholders of the
enterprise increases

16.Финансовый риск в деятельности предприятия. Методы его оценки

(Financial risk in company activity. Methods of its calculations.)
In the most general form, risks are understood as the likelihood of losses or
lost income in comparison with the predicted option.
According to the area of occurrence, financial risks can be divided into
external and internal.
At the present stage, the following are among the main types of financial
risks of an enterprise:

Risk of reduced financial stability

Insolvency risk (or the risk of unbalanced liquidity)
 .Operational risk
Investment risk
Inflation risk
Interest rate risk
Currency risk
Deposit risk
Credit risk
Commodity risk
Structural risk
Assessing the level of risk is one of the most important stages of risk
management, since for managing risk it must first of all be analyzed and
evaluated.

The following methods of qualitative risk analysis are distinguished:

- method of expert assessments;

- method of rating estimates;

- risk sources checklists.

Quantitative assessment methods are generally divided into:

- statistical;

- analytical.

17.Структура и сущность операционного менеджмента (Operating

management: the structure and economic essence.)
Operation management is an activity associated with the development, use
and improvement of production systems on the basis of which the main
products or services of a company are produced. Like marketing and
 finance, operations management is an area of business with distinct
management functions.

Structure
At the operational function level, all management decisions can be divided
into three broad groups:

■ Strategic decisions (long-term).

■ Tactical decisions (intermediate).

■ Decisions related to the planning of operations and their management

(short-term).

The operating system is divided into:

- the actual operating subsystem:

- processing subsystem (main technological function);

- providing subsystem (preparation function)

- management subsystem (planning and control).

18.Сила операционного рычага и оценка предпринимательского риска

(The degree of operating leverage and business risk.)
The effect of operating leverage is that any change in sales revenue results in
an even larger change in profit. The effect of this effect is associated with
the disproportionate impact of conditionally constant and conditionally
variable costs on the financial result when the volume of production and
sales changes.
The higher the share of nominally fixed costs in the cost of production, the
stronger the impact of operating leverage.

The strength of the operating leverage is calculated as the ratio of profit

margin to profit from sales.
· The force of influence of the operating leverage depends on the relative
value of fixed costs;

· The force of influence of the operating leverage is directly related to the

growth of sales;

· The force of influence of the operating leverage is the higher, the closer the
enterprise is to the threshold of profitability;

· The strength of the impact of the operating leverage depends on the level
of capital intensity;

· The force of influence of the operating leverage is the stronger, the lower
the profit and the higher the fixed costs.

Entrepreneurial risk is associated with a possible loss of profits and an

increase in losses from operating (current) activities.
The strength of the influence of the operating leverage shows the degree of
entrepreneurial risk, that is, the risk of losing profits associated with
fluctuations in sales. The greater the effect of operating leverage (the greater
the proportion of fixed costs), the greater the entrepreneurial risk.
 Entrepreneurial risk is a function of two factors:

1) variability of output quantity;

2) the strength of the operating leverage (changing the structure of costs in

terms of variables and constants, the break-even point).

19.Операционный анализ. Расчет и анализ критических показателей

деятельности предприятия (Operating analysis. Key indicators of
operating activity: calculation and analysis.)

Operational analysis is an element of cost management, the essence of which is to study the
dependences of the financial results of an economic entity on the costs and volumes of
production and sales of products, goods, services. This type of analysis is considered one of the
most effective means of planning and forecasting the activities of an enterprise.
The central elements of operational analysis are:
· marginal income
· breakeven point
Margin safety factor = (actual revenue - threshold revenue) / actual revenue * 100%
Operating leverage (production leverage)
During the break-even analysis, the following are determined:
- the critical point at the given ratios of price, fixed and variable costs;

- the required volume of sales to obtain a given amount of profit;

- the critical level of fixed costs for a given level of marginal income;

- the critical selling price for a given sales volume and level of variable and fixed costs.
When conducting a break-even analysis, the following sequence is followed:
1. it is necessary to collect and process the initial information;
2. Determine the sum of fixed and variable costs for the production and sale of products based
on the use of methods such as the correlation method, the minimax method and the least
squares method;
3. to calculate the values of the studied indicators;
4. to conduct a comparative analysis of the level of the studied indicators;
5. to conduct a factor analysis of changes in the level of the studied indicators;
6. to predict their values in a changing environment.
The most important assumptions implicit in the break-even calculation are:
- costs are reasonably divided into fixed and variable;
- variable costs fluctuate in direct proportion to the volume of sales;
- fixed costs remain unchanged for any fluctuations related to the situation under
consideration;
- the unit selling price will remain unchanged in the range included in the analysis.

20.Понятие валовой маржи. Сущность расчета, направление

использования (The contribution margin. Calculation and analysis.)
Gross margin — total revenue from the company's sales volume, less the cost of goods
sold, divided by total revenue, expressed as a percentage. The concept is used in the
analysis of the profitability of the company's production activities.
The gross margin is calculated using the following formula.
Gross Margin=Net Sales−COGS
where:
COGS=Cost of goods sold
With a positive value of the gross margin of the product, the production of goods is
expedient, and an increase in sales volumes will cause an increase in profit.
If GM = 0, the change in sales volumes will not affect the financial result.
If the gross margin is negative, the increase in sales volumes will cause a decrease in
profit, for its growth it is necessary to increase the price or reduce costs.

НЕОБЯЗАТЕЛЬНО
Net Sales=Equivalent to revenue, or the total amount
of money generated from sales for the period. It can also
be called net sales because it can include discounts
and deductions from returned merchandise.
Revenue is typically called the top line because it sits
on top of the income statement. Costs are subtracted
from revenue to calculate net income or the bottom line.
 COGS=Cost of goods sold. The direct costs
associated with producing goods. Includes both direct
labor costs, and any costs of materials used in producing or
manufacturing a company’s products.

The gross margin represents the portion of each dollar of revenue that the company
retains as gross profit. Companies use gross margin to measure how their production
costs relate to their revenues. Gross profit margins can also be used to measure company
efficiency or to compare two companies of different market capitalizations.
Describing whether a particular product pays for its own costs, this indicator is an
objective criterion for the feasibility of manufacturing a particular type of product and a
tool for assessing the impact of various factors on the final profit.

21.Анализ чувствительности в рамках операционного менеджмента

(Sensitivity analysis in the frame of operating management)
Some “What-If” Questions – Sensitivity Analysis

Uncertainty means that more things can happen than will happen. Therefore, whenever managers
are given a cash-flow forecast, they try to determine what else might happen and the implications
of those possible events. This is called sensitivity analysis.

Sensitivity Analysis and Operating Leverage

The degree of operating leverage directly reflects a company's cost structure, and cost structure is
a significant variable when determining profitability.

Operating leverage does this by examining how sensitive a company's operating income is to a
change in revenue streams. While the relationship is fairly consistent among different industries,
the ratio between degree of operating leverage and profitability is likely to be inconsistent.

Cost Structure

A company's cost structure is determined by the ratio between fixed costs and variable costs. If
fixed costs are high, a company will find it difficult to manage short-term revenue fluctuation,
because expenses are incurred regardless of sales levels.

Companies with high fixed costs have higher operating leverage. This increases risk and
typically creates a lack of flexibility that hurts the bottom line. Companies with high risk and
high degrees of operating leverage find it harder to obtain cheap financing.
Degrees of operating leverage show how many times the contribution margin exceeds operating
income. A company with relatively low degrees of operating leverage has mild changes when
sales revenue fluctuates. Companies with high degrees of operating leverage experience more
significant changes in profit when revenues change.

A more sensitive operating leverage is considered more risky, since it implies that current profit
margins are less secure moving into the future.

Higher fixed costs lead to higher degrees of operating leverage; a higher degree of operating
leverage creates added sensitivity to changes in revenue.

While this is riskier, it does mean that every sale made after the break-even point will generate a
higher contribution to profit. There are fewer variable costs in a cost structure with a high degree
of operating leverage, and variable costs always cut into added productivity – though they also
reduce losses from lack of sales.

22.Оценка совокупного влияния финансового и операционного рычага

(Total risk of the company: financial and operating)
Operational leverage is often referred to as" production leverage": it indicates the level of
entrepreneurial risk.

Financial leverage reflects the level of financial risk or risk of loss of financial stability of the company

The effect of operational leverage in international financial practice is referred to as DOL (English
Degree of Financial Leverage) is manifested in the fact that any change in sales revenue always
generates a stronger change in profit.

The production leverage effect (DOL)is calculated using the following formula:

DOL = MP / EBIT,
where:
MP is gross margin Profit);
EBIT – balance sheet profit before interest and taxes.
the DOL formula can look like this:
DOL = (S-VC) / (S-VC-FC),
where:
S – sales revenue (Eng. Sales),
VC-variable costs (English. Variable Cost),
FC-fixed costs (English. Fixed Cost).
if the share of fixed costs in the total cost structure is large, then the company has a high level of
operational leverage, which means that even a small change in revenue can lead to a significant change
in operating profit. Therefore, investments in companies with a higher level of operational leverage are
considered more risky.

The ratio of financial leverage (or financial leverage) reflects the ratio of total debt to equity –
D/E( English Debt-to-Equity):

D/E = Liabilities / Equity

! When data is available, it is better to use the market value of assets and liabilities to calculate financial
leverage.

The size of this ratio simultaneously characterizes:

return on equity due to borrowing and

the degree of risk of loss of financial stability of the company due to exceeding the maximum
permissible level of debt load.

The effect of financial leverage is denoted by DFL (English Degree of Financial Leverage) and shows
how many percent the return on equity increases due to borrowing. The fact is that the use of
borrowed capital, all other things being equal, leads to the fact that the growth of corporate profits
before interest payments and taxes leads to an increase in earnings per share. The recommended value
of the financial leverage effect is in the range of 0.3-0.5, although it still depends on the industry
characteristics of the business.

The DFL indicator shows a direct relationship between the debt burden and the volatility of the
company's profit,

НЕОБЯЗАТЕЛЬНО, ВАЖНАЯ ИНФА ПОСЛЕ ТАБЛИЦЫ

which is expressed in the following formulas:
DFL = % E EPS / % ∆ EBIT
= EBIT / (EBIT-I)
= EBIT / (EBIT-Rd*D),
where:
EBIT – balance sheet profit before interest and taxes;
EPS – net income per share;
I – interest on the debt;
Rd – weighted average loan rate;
D is the amount of borrowed capital (annual average)
DFL = (1-Tax)*(ROA-Rd) * D/E,
where:
ROA is the return on total capital before taxes (the ratio of gross profit to the average value of assets);
Tax – tax rate;
Rd – weighted average loan rate;
D – amount of borrowed capital (annual average);
E – the amount of equity (annual average).
The conjugate leverage effect is denoted by DTL (Degree of total leverage) and is calculated by the
formula:

DTL = DFL *DOL,

where:

DTL is the level of the conjugate effect of operational (DOL) and financial leverage (DFL).

With the help of operational and financial levers, control and plan the desired return on invested
capital and the total level of risk. For example, low operating leverage can be enhanced by leveraging
capital. However, the combination of high operating leverage and strong financial leverage can be
detrimental to the company, for example, exacerbating the negative impact of declining sales revenue
on net profit. Therefore, leverage is used to find the optimal capital structure, which is a compromise
between risk and return.
 23.Формирование прибыли на предприятии (The scheme of profit
formation) The formation of the company's profit is carried out by
summing up the profits or losses from various types of business
transactions.
The profit formation process directly depends on a number of the following
factors:
1) income and expenses from ordinary activities
2) operating income and expenses
3) non-operating and extraordinary income and expenses

24.Направления распределение прибыли

Profit is a form of net income of an enterprise and reflects the results of management, the
productivity of costs of living and materialized labor. It is defined as the difference between the
proceeds from the sale of products (works, services) and the total costs of its production. Acts
in the form of balance sheet, estimated profit and net profit.
Balance sheet profit is the total amount of profit from the sale of products (works, services),
other material assets and income from non-sales operations, reduced by the amount of
expenses on these operations. It is the result of the production and economic activities of the
enterprise.
The estimated profit is generated by the enterprise after deducting from the balance sheet
profit the amounts intended for settlement with the state and local budgets, the bank and
higher management bodies in the form of taxes and various payments.
Net profit is the profit that remains with the enterprise after taxes and other payments, and is
at their complete disposal. The enterprise independently determines the areas of use of net
profit, unless otherwise provided by the charter. It can be distributed as follows: consumption
fund (material incentive fund), accumulation fund (capitalized profit), reserve fund, other funds,
profit to be distributed by a joint-stock company, dividends on preferred shares, dividends on
ordinary shares and other purposes.
An accumulation fund is created to finance the development of an enterprise: to finance
capital investments, modernize equipment, finance new construction, reconstruction, purchase
equipment, repay long-term loans and interest on them, to replenish their own working capital,
to pay off costs associated with the issue and distribution of shares, bonds and other securities,
to finance cultural, educational and recreational work among the employees of the enterprise
and their families, to maintain health camps, etc. Thus, the accumulation fund is a source of
funds for the enterprise, accumulating profit and other sources for creating new property,
purchase of equipment, working capital, etc. The accumulation fund testifies to the growth of
the property of the enterprise, an increase in its own funds.
The consumption fund is a source of funds reserved by a business entity for the
implementation of measures for social development and material incentives for the team.
The consumption fund, formed from profit, is directed to the following purposes:
• payment of one-time bonuses based on the results of work for the year;
• payment of benefits;
• fare payment;
• issuance of interest-free loans;
• establishment of supplements to the pensions of working pensioners;
• one-time incentives for employees;
• establishment of labor and social benefits;
• payment of dividends, interest on shares and securities.

The reserve fund is created by joint-stock companies, cooperatives, partnerships and other
business entities. It can be created in the event of the termination of the enterprise to cover
accounts payable. The reserve fund of a joint stock company is used to pay dividends on
preferred shares in case of insufficient net profit for these purposes. The joint-stock company
additionally credits the share premium to the reserve fund, that is, the amount of the
difference between the selling and par value of shares received upon their sale at a price
exceeding the par value.
Planning the distribution of the company's profits is carried out in the following sequence.
First of all, the need for profit is determined in the areas of its use (for the development of the
material and technical base; for maintaining financial reserves; for repaying loans and paying
interest on them; for financing the activities of associations, associations, concerns, of which
this enterprise is a member; for paying dividends and other purposes). Then the sum of the
need for profit in all directions of its use is compared with the capabilities of the enterprise to
obtain it.
The order of distribution and use of profit
The company uses the received profit in accordance with the current legislation and the provisions
enshrined in the constituent documents, adhering to the following profit distribution scheme:

 all taxes and obligatory payments to the budget (for profit, land, vehicles, rent, etc.) are paid
from the generated profit;
 from the profit (net) remaining at the disposal of the company, funds are allocated to
accumulation and consumption funds (reserve, investment, production development, dividend,
social development, material incentives and others provided for by the charter or constituent
documents). The standards for contributions to funds are established by the company by prior
agreement with the founders.

With all the variety of approaches to the distribution of profits, all enterprises are characterized by
the same principles of profit distribution - its direction:

 for accumulation, i.e. development of the company (formation and replenishment of reserve
and investment funds, investment in the management companies of other companies, financial
investments for different periods). This part of the profit is reflected in the retained block and
forms funds;
 for consumption, i.e. distributed profit (payment of dividends, provision of social and material
support for personnel, purchase of shares, etc.)
Thus, the distribution of profits is a way to implement the developed dividend policy and the policy of
forming the company's own resources.

Distribution and use of enterprise profits

The legislator regulates the distribution of profits in terms of tax revenues to the budgets. Determining
other directions of spending the remaining part of the profit is the prerogative of the digging. The
procedure for the distribution and use of profits is necessarily fixed in the constituent documents and
approved by the head of the company.
Profit distribution standards are not stipulated by the legislator, but a certain influence, for example,
through tax incentives, stimulates the focus of profit on capital investments, innovation, charity and
other goals. The legislator limits the size of the reserve fund, regulates the procedure for forming a
reserve for doubtful debts. Let's consider some aspects of profit distribution in companies of different
organizational and legal forms.

Profit in market conditions is the main goal of entrepreneurship and a criterion of efficiency.
When using resources for the production of products, the main thing is to obtain the maximum
profit in relation to the unit of funds. This finds its expression in the economic indicator of the
rate of profit and profitability of production, which compares the amount of profit received for
the year and the advanced costs.
The ratio of the profit received by the enterprise to the sum of fixed and circulating assets or to
the total costs characterizes the level of profitability of the enterprise.
The basis of the market mechanism is the economic indicators necessary for planning and
objective assessment of the production and economic activities of the enterprise, the formation
and use of special funds, the comparison of costs and results at certain stages of the
reproduction process. In a transition to a market economy

25.The main direction of profit distribution

The cost of capital (also the price of capital, or the cost of capital) is the rate of return that an
investor expects to receive on his investment, taking into account the risks associated with it.
Each type of capital invested in a company (for example, investments in ordinary shares,
preferred or extended long-term loans, and retained earnings) has its own value.
As a rule, the capital invested by a company consists of several different sources, each of
which has its own price for the enterprise (interest on loans, coupon payments on bonded
loans, dividends, etc.) The total price of all capital consists of the values of its individual
components. Therefore, in order to calculate the average price of a company's total capital, it is
necessary to first determine the prices of each of its types.
To determine the price of capital, the most important are the following sources of its formation:
- borrowed funds, which include long-term loans and bond loans;
- equity funds, which include ordinary shares, preferred shares and retained earnings.
For the organization in which the shareholder has invested his money, this potential return to
the shareholder under the alternative project is called the opportunity cost of capital. Since
there can be many alternative projects, the value of the alternative profitability has to be
calculated for each of them separately. In this regard, the term "Weighted Average Cost of
Capital" (WACC) is often used, which means the "alternative" cost of the company's interest-
bearing debt and funds of its shareholders (i.e. ordinary shares, preferred shares and retained
earnings) taking into account the share of each of these components in the total capital
structure. Accordingly, the product of the WACC percentage by the amount of funds invested in
the company by the shareholder will show the size of the possible profit that the “average
investor” would receive if he invested money in alternative investment projects. The decision to
accept the project is made when the internal rate of return exceeds the cost of capital.

WACC = ∑ (Ei * Vi / V),

where

Ei- is the cost of the source,

Vi is the share of the source,
V is the total volume

The main areas of use of the cost of capital indicator in the activities of the enterprise:
 The cost of capital of an enterprise serves as a measure of the profitability of operating
activities the indicator of the cost of capital is used as a criterion in the process of
making a real investment
 The cost of capital of an enterprise serves as a basic indicator of the formation of the
efficiency of financial investment
 The indicator of the cost of capital of an enterprise is a criterion for making managerial
decisions regarding the use of lease (leasing) or the acquisition of ownership of
production fixed assets
 Indicators of the cost of capital in the context of its individual elements are used in the
process of managing the structure of this capital based on the mechanism of financial
leverage
 The level of the cost of capital of an enterprise is an important indicator of the level of
market value of an enterprise
 Indicators of the cost of capital is a criterion for assessing and forming the appropriate
type of policy financing by the enterprise of its assets (primarily - circulating)

26.Стоимость капитала: понятие, сущность, направления использования.

The cost of capital (also the price of capital, or the cost of capital) is the
rate of return that an investor expects to receive on his investment, taking
into account the risks associated with it. Each type of capital invested in a
company (for example, investments in ordinary shares, preferred or granted
long-term loans, and retained earnings) has its own value.
 For the organization in which the shareholder has invested his money, this
potential return to the shareholder from the alternative project is called the
opportunity cost of capital. Since there can be many alternative projects, the
value of the alternative profitability has to be calculated for each of them
separately. In this regard, the term "Weighted Average Cost of Capital"
(WACC) is often used, which means the "alternative" cost of the company's
interest-bearing debt and funds of its shareholders (i.e. ordinary shares,
preferred shares and retained earnings) taking into account the share of each
of these components in the total capital structure. Accordingly, the product
of the WACC percentage by the amount of funds invested in the company
by the shareholder will show the size of the possible profit that the “average
investor” would receive if he invested money in alternative investment
projects. The decision to accept a project is made when the internal rate of
return exceeds the cost of capital.

27.The cost of capital: the economic essence, interconnection with assets

Cost of capital is the cost of a company's funds (both debt and equity), or, from an investor's
point of view "the required rate of return on a portfolio company's existing securities". It is used
to evaluate new projects of a company. It is the minimum return that investors expect for
providing capital to the company, thus setting a benchmark that a new project has to meet.

The cost of capital has two aspects to it

· The cost of funds that a company raises and uses, and the return that investors expect to be
paid for putting funds into the company.
· It is therefore the minimum return that a company should make on its own investments, to
earn the cash flows out of which investors can be paid their return.

The cost of capital can therefore be measured by studying the returns required by investors, and
then used to derive a discount rate for DCF (discounted cash flow) analysis and investment
appraisal.

The cost of capital as an opportunity cost of finance

The cost of capital is an opportunity cost of finance, because it is the minimum return that
investors require. If they do not get this return, they will transfer some or all of their investment
somewhere else.

Here are two examples. (ВЗЯТО ИЗ КУРСА, СТОИТ ПЕРЕФРАЗИРОВАТЬ)

· If a bank offers to lend money to a company, the interest rate it charges is the yield that the
bank wants to receive from investing in the company, because it can get just as good a return
from lending the money to someone else. In other words, the interest rate is the opportunity cost
of lending for the bank.

· When shareholders invest in a company, the returns that they can expect must be sufficient
to persuade them not to sell some or all of their shares and invest the money somewhere else.
The yield on the shares is therefore the opportunity cost to the shareholders of not investing
somewhere else.

The cost of capital and risk

The cost of capital has three elements.

· Risk free rate of return. This is the return which would be required from an investment if it
were completely free from risk. Typically, a risk-free yield would be the yield on government
securities.

· Premium for business risk. This is an increase in the required rate of return due to the
existence of uncertainty about the future and about a firm's business prospects. The actual returns
from an investment may not be as high as they are expected to be. Business risk will be higher
for some firms than for others, and some types of project undertaken by a firm may be more
risky than other types of project that it undertakes.

· Premium for financial risk. This relates to the danger of high debt levels (high gearing).
The higher the gearing of a company's capital structure, the greater will be the financial risk to
ordinary shareholders, and this should be reflected in a higher risk premium and therefore a
higher cost of capital.

ИНФА ИЗ ПРЕЗЫ

THE COST OF CAPITAL will depend upon:

(a) the components of financing: Debt, Equity or Preferred stock

(b) the cost of each component

In summary, the cost of capital is the cost of each component weighted by its relative market
value.

WACC = ke (E/(D+E)) + kd (D/(D+E))

The cost of debt is the market interest rate that the firm has to pay on its borrowing. It will
depend upon three components

(a) The general level of interest rates

(b) The default premium

(c) The firm's tax rate

The cost of equity is

(a) The required rate of return given the risk (CAPM, Arbitrage)

(b) The Dividend yield and price appreciation

(c) The Returns approach

The weights attached to debt and equity have to be market value weights, not book value
weights.

28.Выработка рациональной структуры источников средств

предприятия. (The rational structure of capital sources)

The bottom of the most important problems of financial management is the formation of a rational
structure of sources of funds for the enterprise in order to finance the necessary costs and ensure the
desired level of income.
Determination of the rational structure of sources of funds and the development of a rational dividend
policy largely depend on the net profitability of the company's own funds and the rate of distribution of
profit for dividends.
There are two sources of financing for current activities:
1. external (through borrowing and additional issue of shares);
2. internal (due to owners' contributions to increase the authorized capital, retained earnings and
amortization fund).
External and internal methods of financing are closely interconnected, however, external debt financing
should not replace the attraction and use of own funds, since it is the own funds that contribute to the
development of the enterprise, provide the necessary level of independence and financial stability, and
also ensure the stability of the company's relationship with all market participants, including creditors.

It should be borne in mind that the heterogeneity of the structure of sources of enterprise funds to a
large extent dictates the objective formation of conflict situations, conflicts of interest. So, traditionally,
it is possible to distinguish groups of interests of the management of an enterprise, its owners and
creditors, which do not coincide with each other.
There are four main ways of external financing:
1. Closed subscription to shares (if it is carried out between the previous shareholders, then, as a rule,
at a price lower than the market rate; in this case, the company loses the possible share premium).
Private subscription option - capitalization of paid dividends into new shares. This option is typical for
our country).
2. Public subscription to shares.
3. Attraction of borrowed funds in the form of credit, loans, issue of bonds, bills, etc.
4. A combination of the first three methods.
The simplest measure of how much debt and equity a firm is using currently is to look at the proportion
of debt in the total financing. This ratio is called the debt to capital ratio:

Debt to Capital Ratio = Debt / (Debt + Equity)

Debt includes all interest-bearing liabilities, short term as well as long term.
Equity can be defined either in accounting terms (as book value of equity) or in market value terms
(based upon the current price). The resulting debt ratios can be very different.

29.Факторы, определяющие структуру источников финансирования. The

capital of any enterprise can be represented by two components: own
and borrowed funds.

1. the rate of increasing the turnover of the enterprise. Increased growth rates
of turnover also require increased funding. Therefore, at high rates of
production growth, enterprises focus on increasing the share of borrowed
funds in funding sources;
 2. stability of the dynamics of turnover. An enterprise with a stable turnover
can afford a relatively large share of borrowed funds in liabilities;

3. the level and dynamics of profitability. It has been noticed that the most
profitable enterprises have a relatively low share of borrowed funds on
average over a long period. The company generates sufficient profit to
finance development and pay dividends and manages to a greater extent with
its own funds;

4. structure of assets. If an enterprise has significant general-purpose assets,

which by their very nature are capable of serving as collateral for loans, then
an increase in the share of borrowed funds in the liability structure is quite
logical;

5. the severity of taxation. The higher the income tax, the lower the tax
incentives, the more attractive it is for an enterprise to finance from
borrowed sources due to the attribution of at least part of the interest for the
loan to the prime cost. Moreover, the heavier the taxes, the more painful the
enterprise feels the lack of funds and the more often it is forced to apply for
a loan;
(The main factors determining the structure of capital sources)

30.Преимущества и недостатки различных источников финансирования

деятельности компании (Advantages and disadvantages of different of
different sources of capital)
ТЕОРИЯ КАКИЕ СУЩЕСТВУЮТ

Financing the activities of organizations is a set of forms and methods, principles and conditions of
financial support for simple and extended reproduction. Financing refers to the process of money
formation or, more broadly, the process of capital formation of a firm in all its forms.

Internal financing provides the use of those financial resources, the sources of which are formed in the
process of financial and economic activities of the organization (net profit, depreciation, accounts
payable, reserves for future expenses and payments, income for future periods).
External financing uses funds that come to the organization from the outside world. Sources of external
financing can be founders, citizens, the state, financial and credit organizations, non-financial
organizations.

There are the following sources of funding:

* Internal sources of the company (net profit, depreciation, sale or lease of unused assets).

* Attracted funds (foreign investments).

* Borrowed funds (loan, lease, promissory notes).

* Mixed (complex, combined) financing.

Internal financing involves the use of own funds and, above all, net profit and depreciation charges.

As part of equity, the following are taken into account:

- authorized capital (formed as a result of the contribution of the founders of the company at its
creation)

- additional capital (formed as a result of revaluation of fixed assets of the organization)

- reserve capital (formed at the expense of deductions from the organization's profit for subsequent
unforeseen needs)

ADVANTAGES AND DISADVANTAGES

Financing from own funds

advantages:

1) due to replenishment from the company's profit, its financial stability increases;

2) the formation and use of own funds is stable;

3) external financing costs (debt servicing to creditors) are minimized);

4) the process of making management decisions on the development of the enterprise is forgiven, since
the sources of covering additional costs are known in advance.

As for the disadvantages, the level of self-financing of an enterprise depends not only on its internal
capabilities, but also on the external environment (tax, depreciation, budget, customs and monetary
policy of the state). This level can be low because you only hope for yourself

External financing

Provides for the use of funds from the state, financial and credit organizations, non-financial companies
and citizens: bank loans, commercial loans, i.e. borrowed funds from other organizations; funds from
the issue and sale of shares and bonds of the organization; budget allocations on a repayable basis, etc.

Advantages:

It allows you to accelerate the turnover of working capital, increase the volume of business operations
performed, and reduce the volume of work in progress. However, it leads to certain problems
associated with the need for subsequent servicing of the debt obligations assumed.

Disadvantages: possible disapproval of the amount / non-receipt of funds, a lot of papers and stages for
the application for financing, the need for a trusted person who could vouch for you ( guarantor)
 Loan

- a loan in monetary or commodity form, provided by the lender to the borrower on the terms of
repayment, most often with the payment of interest by the borrower for the use of the loan. This form
of financing is the most common

.Advantages of the loan:

* greater independence in the use of the received funds without any special conditions;

· most often, the loan is offered by a bank that serves a specific enterprise, so the process of obtaining a
loan becomes very fast.

The disadvantages of the loan include the following:

* the loan term in rare cases exceeds 3 years, which is too much for enterprises aimed at long-term
profit;

· to obtain a loan, the company requires the provision of collateral, often equivalent to the amount of
the loan itself;

· with this form of financing, the company can use a standard depreciation scheme for purchased
equipment, which obliges it to pay property tax over the entire period of use.

- high interest on the loan-a leak of funds

Leasing

allows one party-the lessee-to effectively update fixed assets, and the other-the lessor-to expand the
boundaries of activity on mutually beneficial terms for both parties.

Advantages of leasing:

* Leasing involves 100% lending and does not require immediate payments.

* Leasing allows an enterprise that does not have significant financial resources to start implementing a
large project.

It is easier to get a lease contract than a loan - after all, the equipment itself is the security of the
transaction. A lease agreement is more flexible than a loan. A loan always involves a limited amount and
terms of repayment. When leasing, the company can calculate the receipt of its income and work out
with the lessor the appropriate financing scheme that is convenient for it. Leasing does not increase the
debt in the company's balance sheet and does not affect the ratio of own and borrowed funds, i.e. it
does not reduce the company's ability to obtain additional loans. Lease payments paid by the enterprise
are entirely attributed to production costs.

The disadvantages of leasing include, for example: 1. The need to make an advance payment. 2.
Payments are mandatory and do not depend on the results of economic activity of the enterprise. 3. For
the lessee, the cost of leasing is higher than the purchase on credit.

31.Цена и стоимость финансовых активов. Закон приведенной

стоимости (Present value of financial assets)
Financial assets characterize the various financial instruments owned by the company or
in its possession. The company's financial assets include:
*monetary assets in the national currency;
* monetary assets in foreign currency;
* accounts receivable in all its forms;
* short-term financial investments;
* long-term financial investments.
Present value (PV) independently is the current value of a future sum of money or stream
of cash flows given a specified rate of return. Future cash flows are discounted at the
discount rate, and the higher the discount rate, the lower the present value of the future
cash flows. Determining the appropriate discount rate is the key to properly valuing
future cash flows, whether they be earnings or debt obligations.
The difference and understanding
Cost is a monetary estimate of the value of a given asset. Cost (value) is not an absolutely
unambiguous characteristic.
Price is a certain monetary value of an asset at which it can be bought (sold) at a given
moment.
a) the cost is a calculated indicator, and the price is declared, i.e. declared, which can be
seen in price lists, price tags, and quotes;

b) at any given time, the price is unambiguous, and the cost is multi-valued, while the
number of cost estimates depends on the number of professional market participants and
the form of market efficiency;

c) with a certain degree of conditionality, it can be argued that the value is primary, and
the price is secondary, since in an equilibrium market, the price, firstly, quantitatively
expresses the intrinsic value of the asset and, secondly, is spontaneously set as the
average of the value estimates calculated by investors.
The law of present value.
Any security has an intrinsic value, which can be quantified as the discounted value of
the future revenue generated by this security, i.e. you need to move from the future to the
present. It's just a matter of how accurately you can predict earnings, and this can be done
by analyzing the overall market situation, the company's investment and dividend policy,
investment opportunities, etc.This approach to stock market analysis is known as
fundamental analysis.
32.Особенности оценки стоимости заемного капитала. Эффект
налогового щита (Peculiarities of debt source of capital estimation. Effect
of tax shield)
Peculiarities of debt source of capital estimation.
* comparative simplicity of forming a basic indicator for estimating the cost of borrowed
funds. The basic indicator subject to subsequent adjustment is the cost of debt service in
the form of interest on a bank loan, as well as the coupon rate on corporate bonds. This
indicator is provided by the terms of the loan agreement, the issue prospectus or other
forms of debt obligations of the enterprise;
* accounting in the process of assessing the cost of borrowed capital of the tax corrector
(shield). This is due to the fact that debt service payments (interest on bank and
commercial loans, interest on bond loans, etc.) are attributed to production and
circulation costs, thereby reducing the size of the tax base and the cost of borrowed funds
by the income tax rate;
* raising borrowed capital always causes a reverse cash flow, not only for the payment of
interest, but also for the repayment of the principal amount of the debt;
• the cost of borrowing capital is always related to the assessment of the borrower's
creditworthiness by the lender. The high level of creditworthiness of the borrower
organization according to the lender's assessment provides the opportunity to attract
borrowed capital at a minimum (low) cost.

The basic formula for calculating the cost of borrowed capital cd is as follows:
cd = i (1 - t)
where t is the income tax rate.
this formula is not universal and can be used if the additional costs of the borrower are
negligible and interest is included in the costs in full.
If there are additional costs, the cost of borrowing varies with different debt repayment
options.

Tax shield — the effect that occurs when the company's capital is restructured. It
consists in the fact that the amount of corporate tax that is imposed on own capital is
reduced due to an increase in the share of borrowed capital. The tax shield is a method
that allows, within the framework of current legislation, to reduce the amount of taxes
due (by increasing depreciation deductions, assigning interest on borrowed funds to
expenses, etc.) . To apply the tax shield, three conditions must be met:
 1)Tax legislation should allow for a reduction in the tax base by the amount of interest
payments.
2)The company must have an operating profit, i.e. operate without losses.
3)The effective income tax rate should not be zero (the company is not a non-payer of
income tax).
Tax shield = The rate of income tax * Interest payable for the year
The effective income tax rate is indicated in the annual reports of companies. Is
calculated as:
Effective income tax rate = (Income tax rate + Tax shield on borrowed capital)/EBIT

33.Особенности оценки стоимости собственного капитала (Peculiarities of

equity source of capital estimation.)
Estimating the value of individual elements of equity is the most complex.
1)The need for constant adjustment of the carrying amount of equity used by the enterprise. This
necessity is determined by the fact that the amounts of equity and borrowed capital used,
reflected in the liability of the enterprise's balance sheet, have an incomparable quantitative
value. Due to the underestimation of the amount of equity used, its value is artificially inflated in
the calculation process. In addition, for the same reason, its real share in the total amount of
capital used by the enterprise is underestimated, which leads to an incorrect indicator of its
weighted average value.
2) Raising equity is not usually associated with a returnable
3)equity valuation is based on opportunity costs. According to this approach, the investor invests
his funds now in exchange for income from investments in the future;
4) investment (by owners of equity) is carried out reasonably. This means that they are owners of
diversified portfolios. Therefore, specific risks are insignificant for them and the only thing that
shareholders demand compensation for is the market risk generated by the company;
5) there is a risk-free asset on the market, the income on which is guaranteed, and therefore the
return on investment in a particular enterprise (and the cost of equity) cannot be lower than the
risk - free rate of return. At the same time, investing in a specific company (and in the market as
a whole) is associated with the presence of a premium (or additional income);
6) the amounts paid to shareholders of capital are included in taxable profit, and therefore they
are not protected by a tax shield, which increases the cost of equity in comparison with borrowed
capital;
7) investments in an enterprise have an increased level of risk compared to lending. This is due
to the fact that the claims of the owners of the main part of this capital are subject to satisfaction
in the event of bankruptcy of the enterprise after settlements with creditors;

Let's consider the main methods and models for estimating the cost of equity:

• the method of cumulative construction;

* dividend discount model (DDM);
* Method (model) of valuation of capital assets (W. Sharpe) of the MSAR
* Method (model) of arbitrage pricing (p. Rossa);
* method (model) of Y. Fama — K. French.cash flow on its main amount, which determines the
profitability of using this source by the enterprise, despite its higher cost

34.Модель оценки доходности финансовых активов (САРМ),

преимущества и недостатки. Capital Assets Pricing model (CAPM)
advantages and disadvantages

The capital asset pricing model (CAPM) is a finance theory that establishes a linear
relationship between the required return on an investment and risk. The model is based on the
relationship between an asset's beta, the risk-free rate (typically the Treasury bill rate) and the
equity risk premium, or the expected return on the market minus the risk-free rate.

At the heart of the model are its underlying assumptions, which many criticize as being
unrealistic and which might provide the basis for some of its major drawbacks.

No model is perfect, but each should have a few characteristics that make it useful and
applicable.

Advantages of the CAPM Model

1)Ease of Use
The CAPM is a simple calculation that can be easily stress-tested to derive a range of possible
outcomes to provide confidence around the required rates of return.

2)Diversified Portfolio

The assumption that investors hold a diversified portfolio, similar to the market portfolio,
eliminates unsystematic (specific) risk.

3)Systematic Risk

The CAPM takes into account systematic risk (beta), which is left out of other return models,
such as the dividend discount model (DDM). Systematic or market risk is an important variable
because it is unforeseen and, for that reason, often cannot be completely mitigated.

4)Business and Financial Risk Variability

When businesses investigate opportunities, if the business mix and financing differ from
the current business, then other required return calculations, like the weighted average cost
of capital (WACC), cannot be used. However, the CAPM can be used.

Disadvantages of the CAPM Model

The disadvantages of the model include the fact that it is based on a number of assumptions and
assumptions that characterize the stock market and its participants, and largely idealize the real
situation.

According to the model, the profitability of a stock is affected by only one factor – the behavior
of the stock market as a whole.

1)Risk-Free Rate (Rf)

The commonly accepted rate used as the Rf is the yield on short-term government securities.
The issue with using this inpur is that the yield changes daily, creating volatility.

2)Return on the Market (Rm)

The return on the market can be described as the sum of the capital gains and dividends for the
market. A problem arises when, at any given time, the market return can be negative. As a
result, a long-term market return is utilized to smooth the return. Another issue is that
these returns are backward-looking and may not be representative of future market
returns.

3)Ability to Borrow at a Risk-Free Rate

CAPM is built on four major assumptions, including one that reflects an unrealistic real-world
picture. This assumption—that investors can borrow and lend at a risk-free rate—is
unattainable in reality. Individual investors are unable to borrow (or lend) at the same rate as
the U.S. government. Therefore, the minimum required return line might actually be less
steep (provide a lower return) than the model calculates.

4)Determination of Project Proxy Beta

Businesses that use the CAPM to assess an investment need to find a beta reflective of the
project or investment. Often, a proxy beta is necessary. However, accurately determining one
to properly assess the project is difficult and can affect the reliability of the outcome.

35.Модель Гордона (модель дивидендов постоянного роста),

преимущества и недостатки. The Gordon’ formula (dividend discount
model: constant growth rates), advantages and disadvantages

The Gordon Growth Model (GGM) is used to determine the intrinsic value
of a stock based on a future series of dividends that grow at a constant rate.
It is a popular and straightforward variant of the dividend discount model
(DDM). The GGM assumes the dividend grows at a constant rate in
perpetuity and solves for the present value of the infinite series of future
dividends. Because the model assumes a constant growth rate, it is
generally only used for companies with stable growth rates in dividends
per share.
The Gordon Growth Model, also known as the dividend discount model,
measures the value of a publicly traded stock by summing the values of
all of its expected future dividend payments, discounted back to their
present values. It essentially values a stock based on the net present
value (NPV) of its expected future dividends.
Gordon Growth Model: stock price = (dividend payment in the next
period) / (cost of equity - dividend growth rate)

Formula and Calculation of the Gordon Growth Model

P= D1 /(r−g )
where:
P=Current stock price
g=Constant growth rate expected for
dividends, in perpetuity
r=Constant cost of equity capital for the
company (or rate of return)
D 1 =Value of next year’s dividends

The Gordon Growth Model values a company's stock using an assumption of constant
growth in payments a company makes to its common equity shareholders. The three key
inputs in the model are dividends per share (DPS), the growth rate in dividends per share,
and the required rate of return (RoR).
Dividends per share represent the annual payments a company makes to its common
equity shareholders, while the growth rate in dividends per share is how much the rate of
dividends per share increases from one year to another. The required rate of return is a
minimum rate of return investors are willing to accept when buying a company's stock,
and there are multiple models investors use to estimate this rate.

ADVANTAGES
The advantages of the Gordon Growth
Model is that it is the most commonly
used model to calculate share price and is
therefore the easiest to understand. It
values a company's stock without taking
into account market conditions, so it is
easier to make comparisons across
companies of different sizes and in
different industries.
DISADVANTAGES
There are many disadvantages to
the Gordon Growth Model. It does
not take into account nondividend
factors such as brand loyalty,
customer retention and the
ownership of intangible assets, all
of which increase the value of a
company. The Gordon Growth
Model also relies heavily on the
 assumption that a company's
dividend growth rate is stable and
known.

If a stock does not pay a current dividend,

such as growth stocks, an even more
general version of the Gordon Growth
Model must be used, with an even greater
reliance on assumptions. The model also
asserts that a company's stock price is
hypersensitive to the dividend growth rate
chosen and the growth rate cannot exceed
the cost of equity, which may not always
be true.

36.Средневзвешенная цена капитала, зависимость стоимости капитала

от потребности в нем. Weighted average cost of capital (WACC): cost of
capital as a function of investment budget

The weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which
each category of capital is proportionately weighted. All sources of capital, including common
stock, preferred stock, bonds, and any other long-term debt, are included in a WACC calculation.
A firm’s WACC increases as the beta and rate of return on equity increase because an increase in
WACC denotes a decrease in valuation and an increase in risk.
To calculate WACC the analyst will multiply the cost of each capital component by its
proportional weight. The sum of these results, in turn, is multiplied by 1 minus the corporate tax
rate.
company may have raised funds from more than one source of finance, in which case WACC
(Weighted Average Cost of Capital) must be found, which indicates the minimum rate at which
the company should earn from the business in order to give a return to its finance providers, as
per their expectations.
The importance and usefulness of the weighted average cost of capital (WACC) as a
financial tool for both investors and companies are well accepted among financial analysts. It’s
important for companies to make their investment decisions and evaluate projects with similar
and dissimilar risks. The calculation of important metrics like net present values and economic
value added requires the WACC. It is equally important for investors making valuations of
companies.
WACC analysis can be looked at from two angles—the investor and the company. From the
company’s angle, it can be defined as the blended cost of capital that the company must pay for
using the capital of both owners and debt holders. In other words, it is the minimum rate of
return a company should earn to create value for investors. From the investor’s angle, it is the
opportunity cost of their capital. If the return offered by the company is less than its WACC, it is
destroying value. Therefore, the investors may discontinue their investment in the company and
look somewhere else for a better return. It is used for 1)EVALUATION OF PROJECTS WITH
THE SAME RISK 2) DISCOUNT RATE IN NET PRESENT VALUE CALCULATIONS 3)
CALCULATION OF ECONOMIC VALUE ADDED (EVA)
 37.Определение и структура оборотных средств предприятия. Current
assets: definition and structure
For the production of products, the means of labor (machines, fixtures, equipment) are not
enough. In addition to them and the labor of the enterprise employees, the source material,
raw materials, blanks are also needed - that from which finished products are created in the
production process - objects of labor. And in order to be able to buy these objects of labor from
suppliers and pay for the labor of workers, the enterprise needs money. The objects of labor
and monetary resources together form the current assets of the enterprise.
The composition of current assets is understood as a set of elements that form current assets.
The division of circulating assets into circulating production assets and funds determines the
peculiarities of their use and distribution in the spheres of production and sale.
The main purpose of current assets is… to make a turnover! In the course of such a process,
circulating assets change material form to monetary form, and vice versa.

productive
reserves

unfinished
cash
production

finished products
The turnover of current assets is the most important indicator.
The faster the funds of the enterprise turn around, the smaller the time gap between
investments in production and the receipt of returns - revenue (and with it profit).
It is important that the current assets of an enterprise, in contrast to fixed assets, participates
in the production cycle only once and at the same time completely transfers its value to the
finished product! This is what mainly distinguishes fixed and circulating assets.
The structure of current assets includes various groups of objects of labor and cash.
Enlargedly, they are all divided into two large groups: circulating production assets and
circulation funds.
The composition of current assets:
Circulating production assets - includes in its composition:
warehouse stocks - objects of labor, still awaiting entry into production. These include: raw
materials; basic materials; purchased semi-finished products; accessories; auxiliary materials;
fuel; container; spare parts; quickly wearing out and low-value objects.
stocks in production - objects of labor that have entered production, but have not yet reached
the stage of finished products.
Inventories in production include the following types of current assets:
 work in progress (WIP) - processed products that are not yet finished and have not
arrived at the finished product warehouse;
 deferred expenses (BPO) - the costs that the company bears at the moment, but they
will be written off to the prime cost in the future period (for example, the cost of
mastering new products, creating prototypes);
 semi-finished products for own consumption - semi-finished products (for example,
spare parts) produced by the enterprise itself exclusively for internal needs.
Circulation funds are the funds of the enterprise associated with the sphere of circulation, that
is, with the maintenance of goods turnover. The circulation funds consist of the following
elements:
finished products:
 finished products in the warehouse;
 shipped products (goods in transit; products shipped but not yet paid for).
cash and settlements: cash on hand
 funds in the current account (or on the deposit);
 profitable assets (funds invested in securities: stocks, bonds, etc.);
 accounts receivable.
The percentage ratio between individual groups or elements of current assets - the structure of
current assets.
The structure of the current assets of an enterprise depends on the industry, the specifics of
the organization of production (for example, the introduction of the same logistics concepts
greatly changes the structure of the working capital), the conditions of supply and sale, and on
many other factors.
All sources of working capital of an enterprise can be divided into three large groups:
Own Working capital - the enterprise determines their size independently. This is the minimum
amount of stocks and funds sufficient for the normal functioning of production and sales, timely
settlements with counterparties. Own sources of formation of working capital:
 authorized capital;
  Extra capital;
 Reserve capital;
 accumulation funds;
 reserve funds;
 depreciation deductions;
 undestributed profits;
 other.
Own working capital (or, in other words, the working capital of the enterprise) is an important
indicator, the amount by which the current assets of the enterprise exceed its short-term
liabilities.
Borrowed working capital – covers the temporary additional need for working capital. As a
rule, short-term bank loans and borrowings act as a borrowed source of working capital.
The attracted working capital – those do not belong to the enterprise, they received it from the
outside, but are temporarily used in circulation.
Attracted sources of working capital: accounts payable of the enterprise to suppliers, wage
arrears to employees, etc.
Determination of the enterprise's need for its own working capital is made by him in the
process of rationing. In this case, the standard of working capital is calculated according to one
of the special methods (direct account method, analytical method, coefficient method). This is
how the rational volume of circulating assets used in production and circulation is determined.
METHODS OF WRITING CURRENT CAPITALS IN PRODUCTION
Basic methods:
 FIFO method (from the English "First In First Out" - "first in, first out") - stocks are
written off to production at the price of those stocks that entered the warehouse first.
At the same time, within the framework of the FIFO method, it does not matter how
much the circulating assets written off into production actually cost.
 LIFO method (from the English "Last In First Out" - "last in, first out") - stocks are
written off to production at the price of those stocks that arrived at the warehouse last.
With the LIFO method, the cost of the written off inventory is also not important, since
they will be accounted for at the price of the last ones that arrived at the warehouse.
 At the cost of each unit - that is, each unit of working capital is written off to production
at its cost (so to speak, "by the piece"). An example of writing off inventories using this
method: accounting for jewelry, precious metals, etc.
 At the average cost - the average cost is calculated for each type of inventory and the
inventories are written off for production. This is perhaps the most widespread practice
at Russian enterprises.
OPTIMUM VALUE OF CURRENT CAPITALS
The optimal amount of current assets is such a level at which, on the one hand, an
uninterrupted process of production and sale is ensured, and on the other hand, additional
and unjustified costs do not arise.
At the same time, both large and small circulating assets of the organization (reserves)
have their pros and cons.
Large amount of working capital:
Pros:
 ensuring uninterrupted production process;
  availability of safety stock in case of supply disruptions;
 the purchase of stock in large quantities allows you to get discounts from suppliers
and save on transportation costs;
 the opportunity to benefit from an increase in prices due to the advance purchase of
resources at a lower price;
 large sums of money allow you to pay off suppliers in a timely manner, pay taxes,
etc.
Cons:
 large stocks - a higher risk of damage;
 the amount of property tax increases;
 the costs of maintaining inventory are growing (additional storage space, personnel);
immobilization of circulating assets (in fact, they are “frozen, withdrawn from
circulation, do not work).
Small amount of working capital:
Pros:
 minimal risk of inventory spoilage;
 the costs of maintaining stocks are reduced (less storage space, personnel and
equipment are required);
 acceleration of the turnover of working capital.
Cons:
 the risk of disruptions in production due to late deliveries (after all, then the
warehouse simply will not have the required amount of stock);
 an increase in the risks of untimely settlements with suppliers, creditors, and the tax
budget.

38.Оборачиваемость и рентабельность текущих активов. Current assets:

turnover and profitability
The turnover indicator characterizes the efficiency of the company's use of all available
resources, regardless of the sources of their formation, i.e. it shows how many times in a year
(or other reporting period) a full cycle of production and circulation is performed, bringing
profit to the company, or how many monetary units of products sold brought each monetary
unit of assets.

Current asset turnover ratio = Revenue from sales of products / the average value of
the current assets of the enterprise for the period.

Current asset turnover reflects how many times do current asset turn over during the fiscal
year. This indicator shows how much money was generated by a dollar of used current assets.
Positive is an increasing trend of the current asset turnover over the analyzed period.
Profitability (profitability) is the use of funds – all assets, in which the organization covers its
costs with the received income, and makes a profit. The profitability of the enterprise is
estimated using absolute (express profit, and are measured in rubles, i.e. in value terms) and
relative indicators (measured as a percentage, or in coefficients and characterize profitability).
The return on current assets is a calculated financial coefficient that characterizes the return on
the use of the company's assets, including borrowed funds.

Profitability ratios (Gross Profit Margin, EBITDA Margin, Operating Profit Margin,Net Profit
Margin ,Cash Flow Margin ,Return on assets (ROA), Return on Equity , Return on Invested
Capital) (are financial metrics used by analysts and investors to measure and evaluate the ability
of a company to generate income (profit) relative to revenue, balance sheet assets, operating
costs, and shareholders’ equity during a specific period of time. They show how well a company
utilizes its assets to produce profit and value to shareholders. A higher ratio or value is
commonly sought-after by most companies, as this usually means the business is performing
well by generating revenues, profits, and cash flow. The ratios are most useful when they are
analyzed in comparison to similar companies or compared to previous periods.

Return on Assets = Profit after Taxes / Total Assets

Return on assets (ROA) is a profitability ratio that helps determine how efficiently a company
uses its assets. It is the ratio of net income after tax to total assets. In other words, ROA is an
efficiency metric explaining how efficiently and effectively a company is using its assets to
generate profits.
In details

Current Asset Turnover - an activity ratio measuring firm’s ability of generating sales through its
current assets (cash, inventory, accounts receivable, etc.). It can be calculated by dividing the
firm's net sales by its average current assets, and it shows the number of turns made by the
current assets of the enterprise.

Current Asset Turnover = Net Sales ÷ Average Current Assets

Increasing current asset turnover leads to the decrease of the financial resources amount, needed
for the company's operations maintenance. The values may vary between businesses and
industries, and the normative value is absent. However, higher current asset turnover comparing
to competitors would indicate a high intensity of the current assets usage. The increasing trend of
this ratio is a good sign because this means that the company is working on the consistent
improvement of its policies in inventory, accounts receivable, cash and other current assets
management.
 39.Операционный и финансовый циклы: анализ и управление. Operating
and financial cycles: analysis and management
The operating cycle is the period of time from the purchase of raw materials to payment for
the finished product (if the organization works on a prepayment basis, then the moment of the
end of the operating cycle will be shipment, not payment for the finished product).

OC = time of inventory turnover + T of turnover of receivables

The financial cycle is the period of time during which the organization finances activities only
from its own funds, i.e. it is the gap between the timing of payment for its obligations and the
receipt of funds from the buyer. The financial cycle determines the need for working capital, i.e.
the need for financing the operating cycle, not covered by accounts payable.

FC = OC - turnover time of accounts payable

The shorter the cycles, the lower the degree of provision of the organization with circulating
assets and the riskier the organization is. However, the longer the cycles, the higher the
organization's need for funding sources and the higher the funding costs.
Reducing the financial cycle time can be achieved:
- reducing the maturity of accounts receivable by tightening credit policy, provided that market
conditions allow it;
-increasing the repayment period of the duration of accounts payable by obtaining a deferred
payment to suppliers.
The meaning of managing the financial cycle is its maximum reduction by reducing the
duration of the operating cycle (leading to a decrease in working capital) and an increase in
the turnover period of accounts payable. This leads to a decrease in the required equity
capital, and therefore to an increase in the efficiency of its use. Reducing the duration of the
turnover of receivables is of great importance for reducing the operating cycle.

40.Модель экономически обоснованного размера заказа, особенности

её применения. Economic order quantity: practical application
Economic Ordering Quantity model (EOQ) - Wilson's model - an algorithm that optimizes the
optimal batch size for raw materials (materials, goods), taking into account the total required
volume of their purchase and sale.
The EOQ model can be used to optimize the size of both production stocks and finished goods
stocks, giving an answer to the question of how much stock of a given type a company should
acquire at a time. The optimal order size is understood as the volume of regular deliveries, at
which the amount of stocks required by the enterprise is provided and the total costs of
purchasing and storing stocks in the warehouse are minimized.
To get to the main formula, we need to look at it from the point of other ones.
The total annual cost associated with holding TCC inventory (TotalCarryingCost) is calculated
using the following formula:

TCC = C Q / 2
Annual costs associated with the purchase of a batch of TOC order (TotalOrderingCost):

TOC = F N = F S / Q

The total annual costs associated with the acquisition and storage of TIC inventory
(TotalInventoryCost):

TIC = TCC + TOC = C Q / 2 + F S / Q

The use of this model assumes a number of assumptions, which nevertheless do not overly
limit the possibilities of its practical application:
§ the model is applied to one specific type of product, the quantity of which is continuously
measured;
§ the level of demand for the product is known, constant over time and independent;
§ the goods are produced or purchased in separate batches;
§ the order comes as a separate delivery;
§ delivery time and order costs are constant;
§ stock consumption is continuous;
§ the case of additional delivery of goods is not considered;
§ does not consider the case of a discount for a large delivery

C is the cost of storing a unit of stock per year, which may include:
§ lease of additional storage facilities;
§ payment for special storage conditions;
§ insurance;
§ damage to the goods or its obsolescence;
§ lost alternative income;
Q volume of the order in units of products;
S the annual need of the enterprise for the product in question (in the same units as);
N number of orders per year, N = S / Q;
F the cost of placing an order batch.
The resulting expression can be considered as a functional dependence of the quantity TLC on
the volume of the order Q.

Main Formula:
 where

EOQ - lot size in units;

F is the cost of one batch of the order;
D is the total demand for raw materials for the period, units;
H is the cost of storing a unit of raw materials.

Overall conclusions on the formula:

 the total cost for a given order size is the smallest when the costs of placing the order
are equal to the costs of maintaining the corresponding stock;
 within some limits (near the minimum point), the total cost of orders of various sizes
varies very slightly. However, outside these limits, costs rise or fall sharply;
 in most cases, it would cost a business much more to order too little than to order too
much;
 a change in the cost of stock holding has a much larger impact on the optimal order
quantity than a change in the cost of placing an order.
With the optimal choice of the size of the volume of purchases of goods and stocks of finished
products, financial resources are saved, which means less working capital is needed and,
therefore, the value of the return on sales ratio is higher.
The initial premise is the
assumption that large-scale
purchase lots of inventories
provide lower operating
costs for placing orders in a
certain period (ordering,
transportation, acceptance,
etc.). (The larger the batch
of the order and the less
often the delivery of
materials is made, the lower
the amount of costs for the
delivery of materials).

41.АВС - анализ. Методы оценки запасов. ABC-analysis. Inventory

management.
ABC inventory analysis is based on the Pareto rule (rule 80/20) and involves dividing the
entire range of stored inventory into three categories A, B and C, depending on the
contribution of each category to the overall performance of the enterprise. The main
idea of ABC inventory analysis can be formulated as follows: reliable control of 20 % of
inventory positions allows you to control 80% of the inventory management system.
ABC analysis is a method of classifying and ranking a company's resources according to
their importance to the business.
 ABC analysis is the following sequence of 6 actions:

1)Determination of the purpose of the analysis and the objects of differentiation

(analyze the stock and make a decision to activate sales for items with an excess
balance).
2) Determination of the criterion on the basis of which the differentiation of objects of
analysis will take place. (for example, sales volume in quantitative terms; revenue from
the position;)
3) The analyzed reserves are ranked in descending order of the criterion value.
4) Objects are evaluated based on their contribution to the overall result. For this
purpose, the specific share of the value of the criterion of each object in the total
amount is calculated, as well as the share with an increasing total. The indicated
calculations can be made using available software tools, for example in MS Excel, this
increases the possibility of automating the analysis, which is especially important for
multi-nomenclature objects.
5) According to the results of calculations, the classified objects are divided into
groups: group A (the sum of products’ values is 70-80% of the total cost; group B
(stocks, the amount of which is 10-20% of the total cost) group C includes types of
stocks, the total cost of which is 5-10 % of the total cost
6) Interpretation of the analysis results, conclusions regarding the management of
objects of different groups.

42.Методы оценки денежных потоков, критерии принятия решений.

Methods of cash flow construction. Criteria of decision-making process.
An organization's cash flows are cash receipts and disbursements that are distributed over time due to
the company's activities. Classification of cash flows is usually carried out in accordance with the
following characteristics: types of supporting activities (cash flows from production, investment and
financial activities), direction of movement (positive and negative cash flows), method of calculating
volume (gross and net cash flow), method of estimating in a time interval (present, future, projected
cash flows), level of sufficiency (excess and deficit cash flows).

Methods of estimating cash flows (2 метода)

1) A direct method in which the calculation of flows is based on the company's accounting accounts. In
this case, the excess of income over payments both in the company as a whole and for each type of
activity means cash inflow, and the increase in payments over receipts means cash outflow.

Sources of inflow can be: Funds from the implementation of core activities (proceeds from the sale of
goods, receipt of receivables, proceeds from the sale of inventory, advances from buyers), Investment
activities (sales of construction in progress, long-term financial investments, interest rate on long-term
financial investments), Financial activities (short-term and long-term loans and borrowings, proceeds
from the sale of bills of exchange of the company, payment of debts on them).

Sources of outflow: main activities (payments to suppliers, payment of salaries, payments to the budget
and extra-budgetary funds, interest on credit, payments on the consumption fund and repayment of
debt to creditors), investment activities (capital investments for the development of production), from
financial activities (repayment of short-term and long-term debts and loans, payment of dividends,
purchase and sale of bills and shares).
In the long term, the direct method helps to assess the level of liquidity of the company. When
implementing operational management, the direct calculation method is used to control the process of
generating revenue from the sale of goods and withdrawing relatively sufficient funds to pay for
financial obligations. The disadvantage of the method is that it cannot take into account the relationship
of the obtained financial results (profit) with changes in the absolute size of cash flows.

2)The indirect method is more acceptable from an analytical point of view, since it makes it possible to
determine the relationship between the profit received and changes in the amount of cash. When
calculating cash flows, the net profit indicator is calculated with appropriate adjustments for items that
reflect real cash in accordance with the accounting accounts. The indirect method is based on the cash
flow of the activities carried out. It can show what exactly the company's profit is embodied in, and
where real money is invested. The indirect method is based on a bottom-up study of the report. For this
reason, it is called lower, and direct-upper, because the direct method is used to analyze the income
statement from top to bottom.
Additional:

The cash flow statement is a financial report that records a company’s cash inflows and outflows at a
given time. It is one of the most essential elements in the financial management of a company since it is
an important indicator of the firm’s liquidity.

To prepare a cash flow statement, it is essential to have information on the company’s income and
disbursements. This information can be found in the company’s accounting records and it is important
to order them in such a way to be able to determine the balance for the period (generally one month),
and to estimate future cash flows. (If the balance is positive, it means that income for the period was
higher than disbursements (or expenses); if it is negative, it means that disbursements were higher than
income.)

Main criteria of cash flow:

 Cash (not accounting income) flows

 Operating (not financing) flows
 After-tax flows
 Incremental flows

Cash flow methods:

 Depreciation (systematic allocation of the cost of a capital asset over a period of time for
financial reporting purposes, tax purposes, or both)
 MACRS Method (accelerated method for tax reporting purposes)

43.Показатель NPV. Сущность способ расчета, использование. NPV:

calculation, analysis and practical application.

Net Present Value (NPV) is the value of all future cash flows (positive and negative) over the
entire life of an investment discounted to the present. NPV analysis is a form of intrinsic
valuation and is used extensively across finance and accounting for determining the value of a
business, investment security, capital project, new venture, cost reduction program, and
anything that involves cash flow.
NPV Formula

The formula for Net Present Value is:

Where:

Z1 = Cash flow in time 1

Z2 = Cash flow in time 2

r = Discount rate

X0 = Cash outflow in time 0 (i.e. the purchase price / initial investment)

NPV is used in capital budgeting and investment planning to analyze the profitability of a

projected investment or project. A positive net present value indicates that the projected
earnings generated by a project or investment - in present dollars - exceeds the anticipated
costs, also in present dollars. It is assumed that an investment with a positive NPV will be
profitable, and an investment with a negative NPV will result in a net loss. This concept is the
basis for the Net Present Value Rule, which dictates that only investments with positive NPV
values should be considered.
Net present value (NPV) is a financial metric that seeks to capture the total value of a potential
investment opportunity. The idea behind NPV is to project all of the future cash inflows and
outflows associated with an investment, discount all those future cashflows to the present day,
and then add them together. The resulting number after adding all the positive and negative
cashflows together is the investment’s NPV. A positive NPV means that, after accounting for the
time value of money, you will make money if you proceed with the investment.

44.Показатель IRR. Сущность способ расчёта, использование. IRR:

calculation, analysis and practical application.

The internal rate of return is a metric used in financial analysis to estimate the profitability of
potential investments. The internal rate of return is a discount rate that makes the net present
value (NPV) of all cash flows equal to zero in a discounted cash flow analysis. IRR calculations
rely on the same formula as NPV does. To calculate IRR using the formula, one would set NPV
equal to zero and solve for the discount rate, which is the IRR. However, because of the nature
of the formula, IRR cannot be easily calculated analytically and therefore must instead be
calculated either through trial-and-error or by using software programmed to calculate IRR.
This can be done in Excel.
 Analysis and practical
application.
Why do we calculate IRR?
1)To choose a more
attractive option from
several investment projects.
The higher the calculated IRR
value – the more profitable the
option.
2) determination of the
maximum annual rates of borrowing capital. IRR is particularly important in the case
of bank lending for project financing. If the interest rate on the loan is higher than the
planned profitability, the difference between the amounts of outgoing and incoming cash
flows will become negative, which means a loss

3)To determine the optimal loan rate. If the investor plans to attract borrowed funds, the
amount of interest on the loan should be less than the value of IRR. Only in this case, the
borrowed funds will bring added value
Disadvantages
However, it is impossible to predict 100% accurately the amount of payments on invested
capital; Also, the IRR indicator is quite simple in structure and does not take into account a
large number of internal and external factors that can significantly affect the profitability of the
project.

45.Методы финансирования оборотных активов предприятия. (Methods

of current asset financing)

Current assets of the enterprise - characterize the totality of property values of the enterprise
serving the current production and commercial (operational) activities and fully consumed
during one production and commercial cycle.
The working capital of a company has a fixed and variable part. Permanent working capital is
the funds required to carry out the company's business under normal conditions. The need for
them is relatively constant throughout the entire operating cycle. Variable working capital
reflects additional needs for current assets (safety stocks, increased production due to
increased demand in certain periods).
With the division of current assets into constant and variable parts, the choice of a model for
financing current assets is associated:
1) Ideal model - current assets coincide in size with current liabilities (net working capital is
zero). This model is ideal in terms of compliance with the principle of financing long-term goals
from long-term sources of funds, current activities - from short-term sources, but it is not
realistic from a practical point of view, since it does not provide a reserve of financial stability
and liquidity.
2) Aggressive model - long-term liabilities are a source of financing for non-current assets and a
constant part of current liabilities. (net working capital is equal to the constant part of current
liabilities). The variable part of current assets should be covered by accounts payable and, in
case of its insufficiency, by short-term borrowed funds.
3) The conservative model assumes the absence of accounts payable and short-term borrowed
funds. All the needs of the company are fully covered by long-term sources. In this case, the risk
of losing liquidity is completely absent, however, from the standpoint of profitability, this
model is not optimal and means a reduction in the company's investment opportunities. From a
practical point of view, it is artificial.
4) The trade-off model strikes a balance between an acceptable level of liquidity and
profitability. In this case, long-term liabilities cover the constant part of the current liabilities
and about half of the variable part.
When solving the problem of choosing a source of financing for working capital, the main task
is to maximize cash receipts, and one of the main tasks that meets this goal is to find the right
ratio between borrowed and own funds.
The criteria for this are:
· Provision of sufficient liquidity;
· Ensuring sufficient financial stability;
· Ensuring solvency.
These indicators must be within certain limits.
The financing policy of current assets has a decisive influence on the efficiency of the
enterprise. It is one of the main problems considered when developing a financial strategy.
If the increase in current assets occurs at the expense of own funds or long-term borrowed
capital, then the amount of equity capital increases, and hence the financial stability of the
enterprise. But at the same time, financial leverage decreases, the weighted average cost of
capital rises, and a significant part of income is diverted to finance them.
With an increase in financing of working capital by attracting additional short-term borrowed
funds, the size of own working capital decreases, but at the same time the financial stability of
the enterprise and liquidity indicators decrease. At the same time, the effect of financial
leverage is formed.

46.Основные методы рефинансирования дебиторской задолженности.

Methods of account receivable management: refinancing
The development of market relations and the infrastructure of the financial market make it
possible to use in the practice of financial management a number of new forms of accounts
receivable management - its refinancing, i.e., the accelerated transfer of cash and highly liquid
short-term securities to other forms of the company's current assets.
The main forms of receivables refinancing in use today are:
 Factoring;
 Accounting for bills issued by buyers of products;
 Forfaiting
Factoring. It is a financial transaction consisting in the assignment of the seller's enterprise of
the right to receive funds under payment documents for the delivered products in favor of a
bank or a specialized company - "factor-company", which assume all credit risks for debt
collection. (factor-company) charge a certain commission from the seller-company as a
percentage of the payment amount. Commission rates are differentiated taking into account
the level of solvency of the buyer of the product and the stipulated terms of payment. In
addition, when such an operation is carried out by the bank (factor-company) on time up to
three days provides lending to the seller in the form of prepayment of debt claims under
payment documents (usually in the amount of 70 to 90% of the debt, depending on the risk
factor). The remaining 10-30% of the debt is temporarily deposited by the bank in the form of
an insurance reserve with its default by the buyer (this escrow the established part of the debt
is returned to the seller after the buyer has fully repaid the debt).
The factoring operation allows the seller to refinance the majority of the receivables on the
loan provided to the buyer in a short time, thereby shortening the period of the financial and
operating cycle. The disadvantages of factoring operations include only additional costs of the
seller associated with the sale of products, as well as the loss of direct contacts (and relevant
information) with the buyer in the process of making payments.
Accounting for bills issued by buyers of products. It is a financial transaction to sell them to a
bank (or another financial institution, another business entity) at a certain (discount) price set
depending on their face value, maturity date and discount bill rate. Discount promissory note
rate consists of the average deposit rate, the commission rate, and the level of the risk
premium in case of doubtful solvency of the drawer. This operation can only be carried out with
a bill of exchange. The accounting (discount) price of a bill is determined by the formula:

Forfaiting is a financial transaction to refinance accounts receivable on an export commodity

(commercial) loan by transferring (endorsement) a bill of exchange in favor of a bank (factoring
company) with the latter paying a commission. The bank (factoring company) undertakes to
finance the export operation by paying a discounted bill of exchange, which is guaranteed by
the provision of an aval by the bank of the importing country. As a result of forfeiting, the
buyer's debt on a commodity (commercial) loan is transformed into financial debt (in favor of
the bank). At its core, forfaiting combines the elements of factoring (which exporters resort to
in case of high credit risk) and bills accounting (with their endorsement only in favor of the
bank), forfaiting is used in the implementation of long-term (multi-year) export deliveries and
allows the exporter to immediately receive cash by accounting for bills. However, its
disadvantage is its high cost, so the exporting company should consult with the bank (factoring
company) even before starting negotiations with the foreign importer of products in order to
be able to include the costs of the forfeiting operation in the contract price.

47.Кредитная политика предприятия, обоснование величины скидок

(Credit policy of the company, discount rate estimation)
Credit policy is a decision on which of the buyers, in what amount and for how long, to provide
a payment credit for the shipped products in accordance with the concluded supply agreement.
The structure of credit policy can generally look like this:
1. The purpose of credit policy and its type.
2. Criteria for evaluating buyers and compiling a credit rating.
3. The maximum size and terms of granting a commodity credit, as well as the size of the
discount (depending on the buyer's rating).
4. Interaction of departments involved in the process of receivables management and
the functions of employees.
5. Attachments with the forms of documents required in the process of managing
accounts receivable.
The purpose of the credit policy should be consistent with the company's development
strategy. Typically, the goal may be to increase sales and the return on assets of the enterprise
while reducing the risk of insolvency. The goal of credit policy can be to build strong, long-term
relationships with customers and debt collection that does not threaten those relationships.
There are the following types of credit policy.
1. Conservative (hard) aims to minimize credit risk. The mechanism for implementing this type
of policy is: a significant reduction in the number of buyers of products on credit at the expense
of high-risk groups and minimization of the terms of the loan and an increase in its cost; use of
strict procedures for collection of receivables. A company that adopts a policy of this type is
very liquid, but a narrowing of the circle of potential buyers and a decrease in sales may occur.
2. Moderate - characterizes the typical conditions for the implementation of credit policy in
accordance with accepted commercial and financial practices and focuses on the average level
of credit risk when selling products with a deferred payment. This type of policy is the most
appropriate and cost effective.
3. Aggressive (soft) type, the priority goal of credit policy is to maximize additional profits,
regardless of the high level of credit risk. Such a policy is useful for expanding the circle of
buyers, increasing the turnover, but it entails great economic risks.
Often, buyers do not have the opportunity to timely pay for the goods or the entire volume of
the purchase, therefore, when concluding a deal, credit conditions must be set individually for
each of them. For this, the criteria and procedure for evaluating buyers for assigning a credit
rating to them are defined.
It will determine the terms and size of the allowable loan amounts for each category of
clients. In addition, the credit policy should define the size and procedure for determining the
total limit of the company's receivables. The easiest way is to study the accounting statements
and legal documents of the counterparty to assess its financial condition, as well as the
dynamics of development and the degree of reliability as a buyer.
And only after a comprehensive and comprehensive analysis can a decision be made on
assigning this client to the group of reliable / average / unreliable counterparties and the
feasibility of lending it.
The next step will be to develop conditions for the provision of a commercial loan for each
credit rating. The acceptable term of a commercial loan most often depends on the amount of
discounts applied for early payment of products.
To stimulate the interest of buyers in prepayment or in the timely repayment of receivables, an
enterprise can develop attractive discount systems, ranging from the largest for one hundred
percent prepayment and ending with various discounts for the volume of purchase, for timely
or early payment.
There are also possible options for applying the system for calculating interest and penalties
for late payment according to the debt repayment schedule, which should be reflected in the
contract. But they need to be introduced deliberately, especially in the case of minor violations,
so that this does not negatively affect the relationship with counterparties and, ultimately, the
turnover of the company.
An important part in the structure of credit policy is the regulation of the interaction of
departments involved in the process of managing accounts receivable, as well as the
delimitation of functions and areas of responsibility of the employees involved. This section of
the credit policy serves to reduce the time for making decisions and establish a single scheme
of interaction in certain situations.

48.Особенности создания на предприятии резерва по сомнительным

долгам (Peculiarities of account receivable reserve calculation)
Allowance for doubtful accounts

The allowance for doubtful accounts is a reduction of the total amount of accounts receivable
appearing on a company’s balance sheet. The allowance for doubtful accounts represents
management’s best estimate of the amount of accounts receivable that will not be paid by
customers.
Principle of account receivable reserve
If a company is using the accrual basis of accounting, it should record an allowance for doubtful
accounts, since it provides an estimate of future bad debts that improves the accuracy of the
company’s financial statements. Also, by recording the allowance for doubtful accounts at the
same time it records a sale, a company is properly matching the projected bad debt expense
against the related sale in the same period, which provides an accurate view of the true
profitability of a sale. In the firm's balance sheet, the allowance appears as a contra account
that is paired with and offsets the accounts receivable line item.