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Adviser Assoc. Prof. Demianchuk O.I.
This article explores the financial flows in the enterprise, analyses the economic indicators of business activity and financial stability of the business entity and also presents ways to regulate financial flows in the context of increase in business activity.
Keywords: financial flows, profitability, business activity, financial stability.
Target setting. When business transactions involve financial flows, they do income, expenses, movement of financial resources and assets assessment. Their formation in the company is characterized by varying degrees of their significance which, in their turn, affects the stability of the financial activities of the entity in the short and long term periods. In view of this, the search for the right algorithm of effective financial flows management is very important nowadays.
The analysis of recent research papers and publications. The financial flows management in the enterprise has been investigated by the local and foreign economists. Theoretical and practical aspects are concentrated in the works of Ukrainian scientists. For example, V. Nahaichuk studies the financial flows management while L. Karpenko reveals the methodological issues of financial flows optimization. G. Yarovenko examines the organization of internal control in the system of financial flows management. Despite all this, the problem of improving the financial flows management requires further research.
The purpose and objectives of the study. The main purpose of the research study is to identify the areas of improving the financial flows planning in the company. In its turn, the main task is to determine the optimization methods of the financial flows management and finding out the ways of improving the financial flows in terms of increasing business activity.
The main material. When analyzing the financial flows of the company, we should examine the indicators of business activity and the company’s financial stability as they describe the financial flows turnover and the effectiveness of management actions. In addition, financial stability determines the internal financial abilities and prospects of attracting external funds.
We chose a limited liability company “Renome-Smart” for studying the financial flows of the company and the results of its financial activities.
The level of this enterprise’s financial stability is the main tool of forming the image on the investment market as well as calculating the likelihood of financial insolvency and bankruptcy. Therefore, it serves as an indicator of effective financial flows management in the company. In its turn, determining the type of financial stability on this basis makes it possible to take the appropriate management decisions about the financial resources formation. The indicators of the enterprise’s financial stability are presented in Table 1.
The dynamics of the absolute indicators of “Renome-Smart” financial stability
|2013||2014||2015||The absolute increase, thous. UAH.||Growth rate,%|
|Equity, thous. UAH.||53703||65421||43550||11718||-21871||21,82||-33,43|
|Non-current assets, thous. UAH.||9698||11157||10812||1459||-345||15,04||-3,09|
|Inventories, thous. UAH.||7590||11008||26316||3418||15308||45,03||139,06|
|Own sources of inventory formation, thous. UAH.||44005||54264||32738||10259||-21526||23,31||-39,67|
|Own sources and long-term loan of inventory formation, thous. UAH.||44005||54264||32738||10259||-21526||23,31||-39,67|
|The main sources of inventory formation, thous. UAH.||44005||54264||32738||10259||-21526||23,31||-39,67|
|Surplus (+) / lack (-) of own sources of inventory formation, thous. UAH.||36415||43256||6422||6841||-36834||18,79||-85,15|
|Surplus (+) / lack (-) of own and long-term sources of inventory formation, thous. UAH.||36415||43256||6422||6841||-36834||18,79||-85,15|
|Surplus (+) / lack (-) of main sources of inventory formation, thous. UAH.||36415||43256||6422||6841||-36834||18,79||-85,15|
|Type of financial stability||Absolute||Absolute||Absolute||х||х||х||х|
Source: [4; 5; 6]
Therefore, the company’s financial status had not changed during the analyzed period. The “Renome-Smart” had the absolute financial stability and the ideal amount of the main sources of inventory formation in 2013-2015. The company did not attract short-term loans from banks and long-term liabilities which means that the enterprise’s inventories were formed entirely from its equity. In general, the type of financial stability should not be regarded as positive because it will mean that the company did not want to attract loan sources of financing, the use of which would ensure the increase in equity due to the effect of financial leverage.
The analysis of relative indicators of “Renome-Smart” financial stability is presented in Table 2.
During the studied period of time, all relative indicators of the company’s financial stability were within the statutory value, except for the indicators of equity mobility and inventory provision with its own working capital. These indicators reached higher values compared to the statutory ones.
The dynamics of “RENOME-SMART” financial stability relative indicators
The absolute increase
|Equity to total assets ratio||
|Concentration of loan capital ratio||<0,5||0,29||0,14||0,49||-0,16||0,36|
|Financial stability ratio||0,75–0,9||0,71||0,86||0,51||0,16||-0,36|
|Equity mobility ratio||0,3–0,5||0,82||0,83||0,75||0,01||-0,08|
|Ratio of inventory provision with own working capital||0,5–0,8||5,80||4,97||1,24||-0,83||-3,73|
|Ratio of current assets provision with own working capital||>0,1||0,66||0,84||0,44||0,18||-0,40|
|The index of permanent assets||decrease||0,18||0,17||0,25||-0,01||0,08|
Source: [4; 5; 6]
The main negative change was increase of assets that accounted for 1 UAH of own funds. Namely it increased from 1.42 UAH to 1.97 UAH. In its turn, the share of capitalized sources of financial resources decreased from 71% to 51%. Starting from 2013, the inventory provision with the own working capital crossed its statutory value and amounted to 580%. During the analyzed period of time, the share of inventories formed at the expense of working capital was 66%, 84% and 40% respectively. Thus it may be considered positive. Also, the share of equity capital aimed at non-current assets decreased from 18% to 17% in 2014 and increased to 25% in 2015 that, in its turn, is considered to be negative. Generally, the condition of “Renome-Smart” financial stability in 2013-2015 can be characterized as positive despite the fact that the dynamics of certain ratios tend to decrease. It means that the company used only available resources and did not form financial flows with contractors during the studied period.
Moreover, the current company’s activity can be analyzed with the help of business activity indicators which can reveal the actual state of affairs in the most accurate and thorough way. The results are presented in Table 3.
The dynamics of indicators of “Renome-Smart” economic activity
|2013||2014||2015||The absolute increase, thous. UAH||Growth rate,%|
|The average amount of invested capital, thous. UAH||75936,5||76160,5||81028||224||4867,5||0,29||6,39|
|Net income, thous. UAH||130986||182090||80008||51104||-102082||39,01||-56,06|
|Net profit, thous. UAH||16332||12156||14669||-4176||2513||-25,57||20,67|
Source: [4; 5; 6]
During the analyzed period the company’s invested capital increased to 224 thous. of UAH., or by 0.29% in 2014 and 6.39% in 2015. Net income increased by 39.01% in 2014 and decreased by 56.06% in 2015. Also, net profit decreased by 25.57% in 2014 and increased by 20.67% in 2015. It means that a “golden rule of economy” is not followed, and the growth of the net income and profit is not sufficient in comparison with the growth of the invested capital.
The quality of economic growth may be characterized by the general indicators which determine the asset turnover and capital level.  The calculations are shown in Table 4.
The dynamics of the “Renome-Smart” resource efficiency
|2013||2014||2015||The absolute increase|
|Working capital ratio||1,72||2,39||0,99||0,67||-1,40|
|Duration turnover of working capital, days||208,70||150,57||364,59||-58,13||214,02|
|Account receivable turnover ratio||38,07||43,79||17,42||5,72||-26,37|
|Duration turnover of account receivable, days||9,46||8,22||20,66||-1,24||12,44|
|Inventory turnover ratio||19,30||14,92||2,31||-4,38||-12,61|
|Duration turnover of inventory, days||18,65||24,13||156,07||5,48||131,94|
|Account payment turnover ratio||38,33||94,85||34,90||56,52||-59,95|
|Duration turnover of payment receivable, days||9,39||3,80||10,32||-5,60||6,52|
|Duration turnover of advances granted, days||109,89||33,78||82,46||-76,11||48,69|
|Duration turnover of advances received, days||13,50||4,68||12,66||-8,82||7,98|
|Operating cycle tome, days||28,11||32,35||176,73||4,24||144,38|
|Cash cycle time, days||18,72||28,56||166,42||9,84||137,86|
|Stability factor of economic growth||0,16||0,20||-0,40||0,05||-0,60|
Source: [4; 5; 6]
Therefore, during the analyzed period, company’s working capital turned 1.72 times in 2013, 2.39 times in 2014 and 0.99 times in 2015. This increase should be characterized as positive because it characterized the efficiency of company’s all assets use. Also, positive thing was the reduction of the duration of working capital turnover for 26 days in 2015. Regarding debit debts turnover for products, goods, works and services, there was a decrease by 26.37 points in 2015. The duration of the debit debts turnover increased that is regarded as negative. The increase in the financial cycle also contributed to the increase in the duration of pre-payment and inventory turnover that affected the operating cycle. Talking about the operating cycle of the enterprise, its dynamics is significantly increased which means increase in the period of time from the getting raw materials to receiving cash for sold goods. Moreover, there was an increase in the financial cycle almost to 138 days in 2015 or, in other words, the period from investing in inventories to their receiving as a result of the products sale. As for the economic growth stability ratio, we can see the increase in the share of equity generated due to the reinvested net profit. This share was 16% in 2013, 20% in 2014 and reached a negative value in 2015. Therefore, although it previously increased dynamics, it was still insufficient to ensure financial stability. In general, the business activity worsened in the enterprise’s dynamics.
It should be noted that an analysis of the profitability indicators plays an important part. They are presented in Table 5.
The dynamic of the “Renome-Smart” profitability indicators in 2013-2015
|2013||2014||2015||The absolute increase|
|Production gross profit margin, %||31,75||24,02||46,20||-7,73||22,18|
|Production operating margin, %||15,40||7,94||8,55||-7,46||0,62|
|Net sales profitability, %||12,47||6,68||18,33||-5,79||11,66|
|Product profitability at cost, %||46,52||31,53||85,86||-15,00||54,34|
|Assets operating return, %||26,57||18,97||8,45||-7,59||-10,53|
|Assets net profitability, %||21,51||15,96||18,10||-5,55||2,14|
|Permanent assets profitability, %||342,17||129,43||143,51||-212,75||14,08|
|Current assets profitability, %||23,22||18,49||20,94||-4,72||2,45|
|Net equity profitability, %||32,80||20,33||26,92||-12,47||6,59|
|Net long-term investments profitability, %||32,80||20,33||26,92||-12,47||6,59|
Source: [4; 5; 6]
It is possible to conclude that there were 32 kopiykas of gross profit, 15 kopiykas of operating profit and nearly 33 kopiykas of net profit on 1 UAH of the net income in 2013. Also, there were 47 kopiykas of gross profit on 1 UAH of products at cost. The use of equity assets, fixed assets and long-term investments was profitable as well. The dynamics of all these indicators experienced negative dynamics in 2014 and improvement of some indicators in 2015. In general, the analysis of the “Renome-Smart” profitability can be characterized as positive.
In general, we observed an absolute financial stability in “Renome-Smart” which confirms the opinion that the invested in the business resources can be compensated due to the cash receipts. We can say that self-financing ensured the enterprise’s profit without any external sources of assets. The financial stability of the company confirms that there were internal financial opportunities for attracting external financial resources. Also, the efficiency of the financial flows management in the enterprise was carried out at a high level, but business activity underwent negative changes. Thus we consider it appropriate to take measures to improve its functioning on the basis of optimal financial flows management. This will provide a stable financial balance, synchronization of activities, acceleration in the capital circulation, reduction in the insolvency risk and achievement of the profit maximization.
Taking into account the dynamics of the company’s selected activities, we consider the implementation of the financial flows planning the best way of optimization. It will provide with the sources of revenues and with the analysis of the spending directions. The system of financial flows planning must include the following subsystems:
- planning of financial assets over a definite period of time;
- planning of spending the available resources;
- determination of net cash flow;
- analysis of the funding needs.
In the financial flows planning, the company uses the cash budget (a plan of revenues and expenses) and the payment calendar (financial plan of cash flows management). 
In order to increase the financial flows management in “Renome-Smart” for improving its business activity, we suggest:
- To use the system of financial responsibility centres budgeting. It will help not only establish the responsibility and working conditions among the employees but also form the overall structure of financial flows due to the sources of formation and use.
- To use the tools of adjusting cash flows with the help of such economic management tools as price discounts/premiums, fines, penalties, debit debts refinancing, debt restructuring, financial investments, postponement of payment etc.
- To develop and use the payment calendar. Payment calendars are the main tool of the operational financial flows management. They will provide financial services with an opportunity to exercise operational control over revenues and expenses, fix the financial situation, apply the corrective measures to synchronize the positive and negative cash flows and provide a stable solvency.
As a result, the use of payment calendar will allow:
– to increase the payments control that will reduce the costs from funds misuse and provide the business transparency;
– to create the reasonable medium-term and short-term plans of revenues and payments;
– to have the available, complete and accurate information about the availability of cash to save money while attracting the additional loans and extra funding.
The organization of the management decisions control and achievement of the strategic goals plays an important role as well. The main purpose of funds movement control is a timely detection of deviations from the planned measures and their elimination in order to ensure the implementation of the developed plans. To do this, we need to create certain conditions, namely:
- the group of people responsible for the planning and monitoring of the financial flows;
- the system of indicators which will characterize the financial flows management and help company pre-determine the limits of their variation;
- the system of control over regulating the financial flows and the system of decision-making on the changes regarding the established indicators. 
Conclusions. Planning and monitoring of financial flows occupies a significant place in regulating business activity. The system of monitoring, in this case, is a permanent mechanism for examining the indicators, determining the deviation of the actual results from the planned ones and identifying the causes of these abnormalities. In conclusion, we note that the financial flows management directly affects its solvency, liquidity, company’s financial stability and business activity. For this reason, the company “Renome-Smart” needs to carry out the process of selecting the most optimal forms of financial flows organization, and including all the peculiarities and each direction of the management optimization, correct and develop the enterprise’s activities, market conditions and the general situation in the country.
1. Kalambet C. Management of operational cash flows of the company / Kalambet S., A. Yakimova. – D .: Dnipropetrovsk National University of Railway Transport named after Academician V. Lazaryan, 2009. – 122 p.
2. Karpenko L. Optimization methods and models of cash management at the enterprise / LM Karpenko // Journal of Social and Economic Research. – 2014 – Vol. 1. – P. 201-210. – Access: http://nbuv.gov.ua/UJRN/Vsed_2014_1_33
3. Majboroda O. Management financial flows of the enterprise: Dis. candidate. ec. sciences: 08.04.01 / Mayboroda O. – Sumy, 2006. – 244 p.
4. Farion V. Analytical assessment of business activity and profitability / V. Farion // Innovative Economy. – 2013. – № 10. – P. 27-33.
5. Financial Statements of “Renome-Smart” in 2013 year. – [Electronic resource] // Official website of the state agency “Agency for Infrastructure Development stock market of Ukraine.” – Access: http://smida.gov.ua/db/emitent/report/year/xml/show/28153
6. Financial Statements of “Renome-Smart” in 2014 year. – [Electronic resource] // Official website of the state agency “Agency for Infrastructure Development stock market of Ukraine.” – Access: http://smida.gov.ua/db/emitent/report/year/xml/show/51282
7. Financial Statements of “Renome-Smart” in 2015 year. – [Electronic resource] // Official website of the state agency “Agency for Infrastructure Development stock market of Ukraine.” – Access: http://smida.gov.ua/db/emitent/report/year/xml/show/67022