4^th year student

National University of Ostroh Academy

Improving of the Formation of Company’s Assets

  The ways of improving the assets formation at PJSC ‘Rivneazot’ have been suggested in this article. The structure of the investigated economic agent’s assets has been analyzed. This paper has substantiated the methods of improving the management of company’s accounts receivable.

  Key words: assets, current assets, fixed assets, asset structure, optimization of assets, accounts receivable.

  Formulation of the problem. In terms of market relations one of the main conditions for successful operation of the enterprise is to ensure the efficient management of available resources. It is worth mentioning that the assets are one of the most important objects of management. The major factors for effective implementation of economic activity are to identify and meet the enterprise’s needs in certain types of resources and optimize assets.

Optimization process of assets should be aimed, firstly, at ensuring that certain species are fully used, secondly, gaining opportunities for increasing operating profit. Maximizing profit is one of the principle goals for every company. Therefore, the formation of the optimal structure of assets determines the relevance of this research.

  Analysis of recent research and publications. The theoretical basis of asset management company have been studied in the works of domestic and foreign scientists such as Azarian O.M., Balabanov L.B., Blank I.A., Bolt H.D., Valevych R.P., Vlasova N.O. , Kireitseva H.H., Lahtionova L.A., Mazaraki A.A., Omelyanovych L.O., Smolin I.V., Frolova L.V. and others. However, existing studies need to be developed towards optimizing the structure of assets, considering requirements about ensuring profitability in business.

The aim of this study is to identify ways for improving the formation of assets based on the study of theoretical and practical aspects of the selected evaluation  issues.

Summary of the basic material. Optimization of assets formation is a correlation between enterprise’s prospects and the results of current activities considering the given value and structure of financing assets [2, p. 655].

During the enterprise’s crisis optimization of assets should be carried out on the basis of accounting, organization and control of cash flow and cash reserves of assets in order to ensure the efficiency of payments and optimal operating company financial resources. Nevertheless, optimization of assets formation should be focused on the selected type of enterprise asset management policy of providing a given level of efficiency of its use value and risk [6, p. 345].

There is an analysis of circulating current and non-current assets below (table 1,2).

  Table 1

Dynamics and Structure of Fixed Assets of PJSC “Rivneazot” for the 2012-2014 Biennium

* Source: it is ccalculated according to the financial statements of PJSC “Rivneazot”

It should be noted from tables 1 and 2 that the formation of assets has the following features:

– fixed assets increase more rapid than current assets;

– fixed assets in the structure of fixed assets occupy almost 90%, in addition, indicators of fixed assets are satisfactory;

– receivables occupies almost 75% in the structure of current assets.

Table 2

Dynamics and Structure of Current Assets of PJSC “Rivneazot” for the 2012-2014 Biennium

* Source: it is calculated according to the financial statements of PJSC “Rivneazot”

Therefore, while optimizing the formation of assets of PJSC “Rivneazot”, firstly, it should be provided the developing ways to improve the management of accounts receivable. The fact that a substantial proportion of receivables in the structure of current assets reflects the diversion of current assets to lending to consumers of finished products, goods and services of the organization, subsidiaries and other receivables, indicating that this part of the actual immobilization of working capital from the production process.

In order to determine the optimal value of receivables for products, goods, works and services for JSC “Rivneazot” the method of Luchkova O.I is used. In this model the key for optimizing is credit period, which combines credit policy and the policy of the optimal size of investments in debt. The main advantages of the use of this technique are the consideration of the period of commercial credit customers and potential costs factoring [5, p. 74]. In particular, the nonlinear dependence of receivables from credit period approximated by A.I Luchkova is the following:

CR(t)-CR_max-CR_max* =CR_{max(1- ),}                                                                                    (1)

CR – commodity receivables

k – the proportionality between the change in the credit period and change of CR(t);

t – crediting period is 365 days.

A.I. Luchkova offers to calculate the proportionality between the change in the credit period and change of CR(t) with the help of the formula:

k= (CR2014-CR2013) ÷ (CR2013-CR2012),                                 (2)

So, with the help of techniques offered by O.I. Luchkova we have determined that JSC “Rivneazot” is the best receivable for products, goods, works and services in the amount of 528 819 thousand UAH., which is less than the volume amount in 2014 to 2138 thousand UAH (Fig. 1). Given the fact that in 2012 and 2013 the amount of receivables for products, goods, works, services were much higher, in 2014 there have been positive developments, as the result the amount of receivables for products, goods, works and services fell nearly optimal equal. Accordingly, there is a need to continue to take measures for its reduction.

Fig. 1. Indicators of current and optimal amounts of accounts receivable for products, goods, works and services of JSC “Rivneazot”.

In addition, at the end of 2014 receivables on settlements occupies a significant part in the structure of current assets, including advances – 473 018 thousand UAH and other current receivables – 3017707 thousand UAH.

Therefore, the company needs to develop measures to reduce or recover such receivables as far as it burdens the company. Considering the fact that the amount of reserves on the company is sufficient and receivables to return the company are impractical, it is necessary to decrease in receivables for advances.

Due to the fact that we have found the optimal level of receivables for products, goods, works and services, the amount of its reduction and the amount of receivables on advances can be attributed to cash. Thus, we can offer now a new composition and structure of current assets of PJSC “Rivneazot” (Table. 3).

Table 3

Proposed Dynamics and Structure of Current Assets of PJSC “Rivneazot”

* Source: it is calculated according to the financial statements of PJSC “Rivneazot”

The results of table 3 shows that we have managed to increase cash and cash equivalents at 475 156 thousand UAH, 56.64 %, by reducing receivables for products, goods, works, services and receivables for advances.

In order to determine the effectiveness of reducing the amount of accounts receivable and increase the amount of money and its equivalents there should be analyzed liquidity ratios before and after our suggested changes (tab. 4).

Table 4

Dynamics of Liquidity Ratios at the end of 2014 and after Optimizing the Structure of Current Assets of PJSC “Rivneazot”

* Source: it is calculated according to the financial statements of PJSC “Rivneazot”

From table it is obvious that there is a positive growth in absolute liquidity ratio – 0.02 to 0.07 value, due to the growth of money and its equivalents. However, current liabilities are not covered by highly liquid assets. Accordingly, it is assessed negatively. These minor changes are caused by other large volume of current receivables and current liabilities. Therefore, there is a great need for company to reduce the amounts of such receivables for further addressing the problem of liquidity.

Considering the fact that the problem of management of accounts receivable related to overdue payments, repayment of debt incomplete, the emergence of doubtful debts, a large amount of accumulated receivables is one of the causes of deterioration of the financial situation of the company JSC “Rivneazot”. Further problems with accounts receivable can lead to real bankruptcy creditor [1, p. 25].

Therefore, in terms of optimizing the composition and structure of current assets to the form offered by us, company will be able to improve its financial situation. Based on this optimization, an important step for the company will develop methods to improve accounts receivable management.

One of the main methods is the process of restructuring [3, p. 158].

As far as restructuring of receivables is directed to the increase of liquidity and solvency of enterprises, refinancing of receivables should be applied which is a system of accelerating the transformation of receivables in cash assets. The main forms of refinancing receivables are factoring, forfaiting and accounting bills. In billing discounting, this system looks like a combination of financial sales transactions of bank notes or other financial institution or entity on a given (discount) price, which is determined on the basis of its nominal value, period of repayment and accounting bills rates [4, p. 84].

The advantages of this form of refinancing as accounting bills for businesses are to guarantee loans provided by counterparties and improve liquidity. Besides this, factoring and forfaiting are not well-developed due to imperfect legal framework for the regulation of the operation [8, p. 496].

Therefore, in our opinion, the method of refinancing receivables by discounting bills should be used in PJSC “Rivneazot” in order to improve management of its accounts receivable that will allow improving its financial situation. Moreover, it will give an opportunity to get additional revenue from use of funds during the period remaining until the end of the repayment of the bill and would solve many other problems.

In addition, PJSC “Rivneazot” in the structure of its assets has significant share of reserves. Excess inventory in the enterprise can lead to poor forecasting and planning marketing company that in any event causes loss of income.

When there is a situation of surplus stocks, in warehouses there are saved a lot of inventory that require substantial costs for service stocks associated with the storage of inventory, and the cost of placing and making orders [7, p. 237].

The process of improving inventory management in PJSC “Rivneazot” should be the main purpose of the release of funds “frozen” in excess reserves. To achieve this goal, it is necessary to develop and implement a number of measures:

• permanent control over the formation of reserves inventory, comparing its regulatory and actual volumes;
• periodic reporting of surplus stocks of finished products with further development of measures for promoting products on the market;
• periodic reporting of excess inventories for accelerating its involvement in the production process [6, p. 345].

Conclusions. Therefore, while analyzing the formation of assets in PJSC “Rivneazot” there was found several shortcomings, the most important of which is the increase in receivables. To solve these problems, the company needs to optimize the formation of assets through improved management of accounts receivable and inventory. We have offered refinancing of receivables using the method of discounting bills and a number of measures for releasing funds “frozen” in excess reserves. These actions will optimize the assets of the company with further improvement of the company.

References:

1. Блакита Г.В. Актуальні питання управління дебіторською заборгованістю / Блакита Г.В. // Збірник наукових праць ВНАУ. – 2012. – №3(69). – С. 23-30.
2. Бланк И.А. Финансовый менеджмент / Бланк И.А. – К. : Эльга, 2004. – 655 с.
3. Блащак Л.М. Шляхи до раціонального управління дебіторською заборгованістю / Блащак Л.М. // Науковий вісник «Львівської політехніки». –2009. – №1. – С. 157-159.
4. Гнєушева І. Вплив застосування методів рефінансування дебіторської заборгованості на фінансову стійкість підприємства / Гнєушева І. // Економічний аналіз. – 2011. – Вип. 8. – С. 82-85.
5. Квасницька Р. Інструментарій та методи оптимізації цільової структури капіталу підприємства / Р. Квасницька // Економіка підприємств. – 2008. – № 5 – С. 73–75.
6. Лахтіонова Л.А. Фінансовий аналіз суб’єктів господарювання: Монографія – К.: КНЕУ, 2007.- 345с.
7. Снитко Л. Т. Управление капиталом торговой организации : учеб. пособ. / Л. Т. Снитко. – М. : Изд-во РДЛ , 2009. – 237 с.
8. Фінансовий менеджмент: Навчальний посібник: Курс лекцій / За ред. проф. Г.Г.Кірейцева – Київ: ЦУА, 2008.-496с.

National University of “Ostroh Academy”

College of Economics

ENSURING FINANCIAL SUSTAINABILITY OF PJSC CB “PRIVATBANK”

Abstract. The article deals with the concept of “financial sustainability ” with regard to economic and legal category aspects. The author has analyzed the financial sustainability indexes of the commercial bank proposed by scientists and indicators by NBU. The research has suggested the ways to ensure the financial sustainability of the commercial bank.

Keywords: financial sustainability, liquidity, assets, capitalization, liability.

The relevance of the topic. The state of the banking system, the level of service and bank financing for enterprises have an important influence on the development of the economy. Nowadays one of the main problems of Ukraine is the maintenance its stability and reliability that can ensure the sustainability of each banking institution.

The most specifically the financial sustainability of the commercial bank reflects trends and problems of the banking sector. In the research process concerned problems of ensuring the financial sustainability of the commercial bank, questions of their compliance with the standards of financial sustainability, established by the NBU and proposed by scientists, are raised because without a strong and stable banking system it is impossible to develop the national economy.

PJSC CB “PrivatBank” is one of the most innovative banks in the world. According to the research of GFK Ukraine, in the third quarter of 2015 PJSC CB “PrivatBank” became the main bank for 41,8% of clients – individual persons, that is more than next eight banks taken together. Among corporate clients, this rate was 28,4%. Since “PrivatBank” holds a dominant position among all banks in Ukraine and is a basic element of the banking system of the country, ensuring its financial sustainability is an important and necessary task nowadays, which determines the relevance of the research.

The analysis of recent researches and publications. As the review of the economic literature has shown, such scholars paid attention to problems of ensuring the financial sustainability of banks: V.H. Andrew, N.H. Antonov, V.V. Vitlinskyy, O.D. Zaruba, N.N. Zakharov, Y.S. Maslenchenkov, V.P. Panteleev, P.Rose, J.Cinco, S.P. Halava, N.M. Sheludko and others. However, despite the numerous publications of this issue, today in the domestic economic literature the issue of financial sustainability of a commercial bank is still controversial and not developed enough from both scientific and practical aspects.

The purpose and objectives of the research. The purpose of the research is to identify the ways to ensure the financial sustainability of PJSC CB “PrivatBank” on the basis of the studying theoretical and the assessment of practical aspects of the selected issues. The main tasks of the work are defining of the notion “financial sustainability of the bank” and the analysis of this financial sustainability of the commercial bank according to the system of indexes developed by scientists and set by the NBU.

The statement of the basic material. The financial sustainability of the bank is interpreted from two perspectives: as an economic category and as a law one. As an economic category, it means such a financial condition of the bank, in which the bank is able to meet its obligations at any time on the condition of the maintenance an appropriate level of liquidity and solvency, the increase of profits and the diminution of risks, and the ability to maintain the state of effective functioning under the negative influence of external and internal factors [2].

The financial sustainability of the commercial bank as a law category means such a bank’s financial condition, in which the bank adheres to the established by the NBU performance benchmark’s values of financial sustainability. The very adherence to indexes provides financial sustainability of the bank [4]. The scientists have developed various systems of indexes which would ensure a financially stable condition of the bank. A.M. Gerasimovych considers a group of indexes of financial sustainability that ensures the sustainability of the bank adhering to its norms. The analysis of these indexes on the example of PJSC CB “PrivatBank” is presented in the Table 1[3, p.599].

During 2012-2014 the reliability coefficient of PJSC CB “PrivatBank” exceeded the normative value (over 5%) and amounted to 16,60% in 2012, 14,61% in 2013, and 13,01% in 2014 respectively. In addition, deviations of this index from the norm are decreasing over the period and close to its upper limit. This is due to the excess of the growth rate of the denominator – the amount of the raised capital – over the growth rate of the numerator – the amount of the equity capital. As a result, this index, and therefore the imminence to the normative value, decreased. The change direction of this index indicates the reliability of the bank and the low level of vulnerability to various external influences; and the diminution of its deviation from the norm indicates the reduction of sustainability of the commercial bank and the level of dependence on raised capital.

Table 1

The dynamics indexes of the financial sustainability of PJSC CB “PrivatBank”

during 2012-2014*

* Calculated by the author according to the source [5].

The financial leverage coefficient, which is the inverse index of the reliability coefficient, indicates the ability of the bank to attract capital on the financial market. During the reporting period, this index is much higher than its normative value, and the deviation from the norm is increasing every year due to the excess of the growth rate of the equity capital over the growth rate of the raised capital. The increase in financial leverage coefficient indicates a reduction of its financial sustainability but also an increase in business activity, which is positively estimated.

An important index of financial sustainability is the adequacy coefficient of assets (the coefficient of the share of the equity capital in the formation of assets), the tendency of which indicates a sufficient amount of the equity capital of the bank for intensification and covering different risks. The deviation from the norm decreases as the growth rate of general assets is much higher than the growth rate of the equity capital, which influences on the alteration of this index in the opposite direction. Another important index of financial sustainability of the commercial bank is the security coefficient of the equity capital that points to the share of the capital, which is aimed at real estate. Over the analyzed period there is uneven dynamics of this index because in 2013 this index increased to 0,04 that is positively estimated. However, in 2014 this index decreased to 0,02, indicating a reduction of the share of the capital, which is aimed at real estate.

The multiplier coefficient of the capital, which characterizes the degree of coverage of assets with share capital, does not reach over the analyzed period its normative value – 12-15 times. However, the deviation from the norm is significantly reduced and in 2014 almost reaches the normative value; the deviation is only 0.24 times. This change of this index shows that, first of all, the growth rate of assets exceed the growth rate of the capital, and affirms the presence of reduction tendencies of using “capacities” with their attraction from the capital. According to the NBU Resolution “On approval of the instruction on the order of the regulation of banks in Ukraine”, the NBU sets the normative values for indexes of financial sustainability for banks of Ukraine that ensures providing them with financially stable state. In Table 2 indexes of financial sustainability of PJSC CB “PrivatBank” during 2012-2014 is calculated with the basis on the structure and the capital adequacy. In addition, each of calculated indexes has a certain normative value [1].The regulatory capital of PJSC CB “PrivatBank” during 2012-2014 was considerably higher than its normative value, and this exceeding was increasing, indicating the abidance of the minimum level of the regulatory capital by the bank for providing its ability to operate continuously and be financially stable to any external or internal factors. The adequacy norm of the regulatory capital during the analyzed period was exceeding the normative value. According to the dynamics of this index, it can be argued that the bank is able to promptly and fully settle accounts with its liabilities arising from trade, credit or other monetary operations. The higher values of the adequacy index of the regulatory capital are, the greater share of the risk is, which is taken by the owners of a bank, and the smaller share of the risk for depositors of a bank. To determine the ability of the bank to protect creditors and depositors from unexpected losses incurred by the bank in the course of business, depending on the size of various risks, the adequacy norm of the equity capital is set.

Table 2

The dynamics of the normative indexes of financial sustainability of

PJSC CB “PrivatBank” based on the structure and capital adequacy

during 2012-2014*

* Calculated by the author according the source [5].

In 2013 the adequacy norm of the equity capital of PJSC CB “PrivatBank” amounted to 13,48%, which is 4,48% more than its normative value. This growth rate is due to the decrease in general assets of the bank and the increase in the sum of the equity capital during the analyzed period. However, the decrease of this index in 2014 for 1,92% caused the decrease of the deviation from the norm from 4,48% to 2,56%. Thus, we can conclude that the bank is trying to protect depositors well against unexpected losses, and it indicates the reliability of the bank. The state of the bank can be considered financially sustainable since during the analyzed period the bank adheres to all norms set by the NBU, which is based on the structure and the capital adequacy.

The NBU set another group of indexes that determine the bank financially sustainable. The analysis of indexes of financial sustainability of the bank, based on the structure of raised and borrowed funds are presented in the Table 3. During 2012-2014 PJSC CB “PrivatBank” complied with all liquidity norms established by the NBU. Thus, the instant liquidity norm, which is set to monitor the ability of the bank to provide timely fulfillment of its monetary obligations by high liquid assets, exceeded the normative value, and the deviation made 55%. The decrease of this index was due to the reducing the amount of bank liabilities, which are registered on current account, that has a negative effect on the financial sustainability of the bank.

Table 3

The dynamics of indexes of financial stability of PJSC CB “PrivatBank”

based on the structure of raised and borrowed funds during  2012 – 2014*

* Calculated by the author according the source [5].

Current liquidity norm, which is set to determine the balance of the timing and the sum of liquid assets and liabilities of the bank, made in 2012 88%, and in 2013 increased to 90% at the normative value 40%. However, in 2014 it decreased by 6% and amounted to 84%. It indicates that the bank can timely meet its monetary obligations that will positively affect its financial sustainability. The short-term liquidity norm has significantly exceeded its normative value in 2012 and made 89%; in 2013 and 2014 it increased to 114% and 99% respectively that indicates the possibility of the bank to fulfill short-term liabilities by liquid assets. The increase of this index is explained by the growth of cash and precious metals.

To sum up, the state of the bank can be considered financially sustainable because PJSC CB “PrivatBank” adheres to all norms set by the NBU and based on the structure of raised and borrowed funds.

Findings. Having analyzed the indexes of financial sustainability of PJSC CB “PrivatBank”, proposed by A.M. Gerasimovych, we can conclude that most indexes fall within the limits of its normative value – the reliability coefficient, the financial leverage coefficient, the sufficiency coefficient of assets, but during the analyzed period the deviation from the norm growths in dynamics that is negatively estimated and undesirable for the bank. The indexes proposed by the NBU have the analogous characteristics. Most of them fall into limits of the normative value but their deviations from the norm are reducing in the recent years. Therefore, maintaining these indexes at a stable level should be an important measure in the bank policy to ensure its financial sustainability that can be achieved through the following measures: improving the planning mechanism of the attraction and the allocation of financial resources; creating the department of customers relations to deal with the involvement of the individual and entity funds in deposits of the bank; establishing special bonus programs for loyal depositors with the simultaneous control  of the quality of the bank loan portfolio; creating the department of the credit risk control. The financial sustainability is an important component in the bank functioning that depends on the nature of its banking. That is why the management should make every effort to maintain the financial sustainability at a high level.

References

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