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.

Table 1

The dynamics of the absolute indicators of “Renome-Smart” financial stability

during 2013-2015

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.

Table 2

The dynamics of “RENOME-SMART” financial stability relative indicators

in 2013-2015

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.

Table 3

The dynamics of indicators of “Renome-Smart” economic activity

in 2013-2015

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. [3] The calculations are shown in Table 4.

Table 4

The dynamics of the “Renome-Smart” resource efficiency

in 2013-2015

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.

Table 5

The dynamic of the “Renome-Smart” profitability indicators in 2013-2015

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). [1]

In order to increase the financial flows management in “Renome-Smart” for improving its business activity, we suggest:

1. 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.
2. 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.
3. 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. [2]

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.

LITERATURE

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

Scientific adviser: Ivanchuk Nataliia Volodymyrivna

                                                               National University of Ostroh Academy

Ensuring the Effectiveness of Passive Operations of Commercial Banks

   The article deals with the theoretical foundations of the effectiveness of passive operations of commercial banks. There  have been conducted the financial analysis of passive operations of Public Joint Stock Company “ State Savings Bank of Ukraine” and provided recommendations to ensure the effectiveness of passive operations of commercial banks.

                   Key words: passive operation, financial stability, liquidity, financial resources, profitability.

                  Formulation of the problem. Resources, accumulated within the state, play a vital role in ensuring the development and effective functioning of the economic system of each country. In modern terms, the successful functioning of the banking system is an  important element for the formation of management decisions which will determine the further development of our country. The formation of the resource base of commercial banks provide fund formation by means of passive operations. The effective implementation of passive operations will spur the growth of financial stability of the banking system, the confidence of depositors and creditors, increase of investments, which, in turn, will help overcome the crisis of the national economy.

                  Analysis of recent research and publications. The theoretical analysis of the concept of passive operations and the research of the effectiveness of its application have been done both by domestic and foreign scientists such as V.Lahutin, A.Moroz, M.Savluk, R.Kotsovska, V.Rychakivska and others.

                  The purpose and aim of the research. The purpose of the research is to develop the ways to improve passive operations of commercial banks on the basis of theoretical study and evaluation of the practical aspects of the chosen subject.

                  Summary of the basic material. Commercial banks in Ukraine, regardless of their ownership, specialization or the size of capital carry out the operations of attracting free funds of economic entities in the form of deposits, settlement and cash transactions of their customers and credit operations. Typically, the bank performs many more operations, but these operations are essential. According to the Law of Ukraine on banks and banking activity such operations may have only entities licensed by the National Bank [1].

                   Bank transactions are recorded in the balance sheet for individual articles. Accordingly, there is a difference between active and passive operations of commercial banks.

                   The NBU defines passive operations as the operation by which the bank creates its own funds to carry out active operations. In other words, it is an operation  connected with the mobilization of resources required for the bank with the exception of equities for supporting its normal functioning, providing the necessary liquidity and obtaining income.

                   There are four forms of passive operations of commercial banks:

– primary emission of securities of commercial banks;

– deductions from income on bank formation or increase of the funds;

– obtaining loans from other entities;

– deposit operations.

         While implementing the first two forms of passive operations, the large group of bank resources is created under the name of own resources. The other two forms of passive operations create a second group of resources – borrowed and attracted bank resources [1, p. 367].

         Own resources are created by means of authorized capital and special funds, which are formed by deposits of bank owners. These resources encompass the basis of financial stability of commercial banks.

         Another component of bank resources is borrowed funds. Borrowed resources comprise funds given by other banks and the NBU, the funds from the sale of bank bonds and emission.

         The last part of the bank resources are formed my means of borrowed funds, which constitute the largest share. Attracted bank resources are formed through a deposit operations that is considered to be the main function of all commercial banks since these resources cover most of the fund needs of the bank for carrying out active operations, that is, for the possibility of granting loans [3, p.174].

The analysis of the efficiency of any bank should be commenced with the assessment of liability balance as long as it will allow to create a picture of the state of the resource base required for the performing active operations and generating profits.

         For detailed analysis of passive operations to be conducted there is a need to pay attention to the following key aspects:

• structure and dynamics of the articles of liability balance of the bank;
• economic performance standards of the monetary authorities that assess capital adequacy and liquidity of institutions;
• indicators of the overall performance and the financial stability of the bank.

This analysis will help to adequately assess the effectiveness of forming the resource base of the bank and establish possible ways to ensure its financial stability [4, p. 98].

         There have been elected of Public Joint Stock Company ” State Savings Bank of Ukraine” for studying the effectiveness of passive operations. It is a banking institution that focuses its efforts on creating profitable and favorable terms for customer service, expanding the range of banking products and services and increasing market presence.

         We consider the data of its performance in order to analyze the main trends in the passive balance of Public Joint Stock Company ” State Savings Bank of Ukraine” during the studied period, Table 1.

         In 2015 the total value of liabilities amounted to UAH 159,13 billion. During the studied period in the structure of bank liabilities customer accounts exceed, namely, their share was 56,12%, 53,42% and 62,11% respectively. In absolute terms, customer accounts have increased during the studied from UAH 46,48 billion to UAH 94,27 billion. The structure also has a tendency to increase the share of loans received from international and other financial institutions. In particular, in 2013 their share was 11,83% (UAH 9,80 bln.), and in 2015 it has increased to 19,43% (UAH 29,50 bln.). In contrast, the structure also has a tendency to reduce the proportion of fund banks from 29,08% (UAH 24,08 bln.), in 2013 to 10,91% (UAH 16,56 bln.) іn 2015 (Fig. 1). This situation occurred due to the suspension of loans from other banks and repurchase agreements of the NBU.

Table 1

Dynamics Liability Balance of JSC “Oshadbank” during 2013-2015

Source: [5]
During 2013-2015 the total value of the bank liabilities has increased from UAH 82,82 billion to UAH 151,79 billion, it is UAH 68,97 billion. Moreover,  there have been increased the share of liabilities in the structure of all funds from 81,19% to 95,39%.

At the end of 2015 the total value of the bank equity has amounted to UAH 7,34 million and in the dynamics  the amount of equity has decreased by UAH 11,85 billion. The reduction of  the value of equity has been made mainly due to an increase in outstanding losses, which at the end of 2015 has amounted to UAH  23,21 billion. However, in 2014 there was an increase in stock capital to UAH 12,67 billion (72,48%) compared to 2013. The decision to increase the stock capital by means of  emission of  shares was taken by the Government in August, November and December of 2014.

Fig. 1. Structure of the Liabilities of the Fund Balance of JSC “Oshadbank” during 2013-2015,%

Source: [5]

During the recent years the results of Sberbank were unprofitable. In particular, in 2015 the total loss has amounted to UAH 11,87 billion. A key factor in the bank loss was the need of forming the significant amounts of insurance reserves for troubled assets.

During the study period indices of performance in Public Joint Stock Company ” State Savings Bank of Ukraine”met the standards set by the NBU (Table. 2). During 2015 regulatory capital has amounted to UAH 30,8 billion this size in comparison to 2014 has increased by UAH 11,10 billion or 56,3%, and by UAH 12,4 billion in comparison to 2013. The indicator of capital adequacy has increased during 2014 to 6,82% and at the beginning of the current reporting period amounted to 31,4%, it indicates the increase in the risk that the holders of bank take, not creditors and depositors. The ratio of regulatory capital was in the normal range in comparison to the total assets, it indicates that regulatory capital is adequate to carry out active operations. During 2013 the instant liquidity indicator of  Public Joint Stock Company ” State Savings Bank of Ukraine” has amounted to 78%, it means that about 80% of all bank liabilities of current customer accounts were provided with highly liquid assets. Over the next year the test value index has decreased by 42,49% to 35,51%, but at the beginning of 2015 its value has increased by 25,02% and the liabilities of the bank of current customer accounts were provided with highly liquid assets by 60%.

Table 2

Dynamics of the Economic Requirements of the JSC “Oshadbank” during 2013-2015

Source: [5]

The evaluation of independence and thus resistance on short-term market movements has been carried out by analyzing the ratio of equity to liabilities. Analyzing the studied period, we can see that only during the 2013-2014 biennium most indicators of financial stability were within normal limits.

         Table 3

Dynamics of Financial Stability of JSC “Oshadbank” during 2013-2015

Source: [5]

During 2013-2015 biennium the safety factor has gradually decreased and in 2015 it reached a critical value and amounted to 4,84% (Table. 3). This situation indicates that since 2015 the bank has a high level of dependence on borrowed funds, which reduces the financial stability of the bank. In contrast, the financial leverage ratio tended to increase. In recent years, it has increased by 16,36 points and in 2015 it has reached to 20,68, which also shows a decline in the financial stability of the bank. The data in the table depict an increase in security of equity by means of growing investment in capitalized assets – fixed assets and intangible assets. It finds its confirmation in the appropriate growth factor from 17,54% to 53,81%.

One of the key performance indicators of the bank is return on equity, the value of which during the studied period did not meet the normative value and pointed to the loss-making activities of the bank (tab. 4).

Table 4

Dynamics of Profitability of JSC “Oshadbank” during 2013-2015

Source: [5]

In particular, during 2014 and 2015 the value of the indicator was 56,04% and 89,45%  respectively, or on 1 USD of capital accounted for 56.04 kop. and 89,45 kop. of net loss. So, in 2014 1 USD of bank assets was 9,50 kop. of  net loss, and in 2015 the value of the analyzed indicator has decreased by 1,13 kop. and reached 8,37 kop. This situation indicates that bank resources were used in an inefficient way.

In order to overcome these problems there is a need to increase equity by reinvesting profits. The profits of the bank are formed by means of credit and cash transactions and  it is the main source of payment of dividends to shareholders of the bank and the creation of reserve funds [31].

To ensure the profitability of  Public Joint Stock Company ” State Savings Bank of Ukraine” there is a need to minimize the costs of the bank authorities and maximize income from banking activities have offered by such directions:

• Increase in assets from which the bank receives interest income. It can be achieved by increasing the number of borrowers who have a satisfactory financial position, as well as by increasing the mobilized resources, which is possible with well-formed deposit policy.
• Increase in the share of earning assets in total assets by means of minimizing non-performing assets  with leaving the required quantities for supporting bank liquidity.
• Restructuring of the portfolio of earning assets. There is a rule that state the higher the income is, the greater the risk in banking is. Therefore, the main task of the bank is to define  the degree of acceptability and justification of a risk in order to get the necessary level of income [6].

Conclusions. Passive operations mobilize the resources of a commercial bank for ensuring the activities to maintain liquidity at an appropriate level and receive the planned income. Today Public Joint Stock Company ” State Savings Bank of Ukraine” requires a capital increase at the expense of profits. It is possible to realize my means of increasing  the number of borrowers who have a satisfactory financial position, as well as increasing deposits. In addition, it is nessesary to minimize non-performing assets taking into account the degree of risk acceptability and justification for the required level of income.

References:

1. Law of Ukraine “On banks and banking activity” from 07.12.2000 number 2121-III – [Electronic resource]. – Retrieved from: http: // zakon2. rada.gov.ua/laws/.
2. Lupus. O Credit and Banking: [textbook] / O. Lupus, N. Rushchyshyn, T. Andreikiv. – K: Knowledge, 2008. – 564p.
3. Stojko. O Banking – O. Stojko – Kyiv: Kyiv National Economic University, 2014. – 226 p.
4. Perasia-Verhunenko. I Strategic analysis of the banks: the theory, methodology, practice: [Monograph] / I. Persia-Verhunenko – Kyiv: Kyiv National Economic University, 2007. – 360p.
5. The annual financial report of JSC “Oshadbank” for 2015. – [Electronic resource]. – Retrieved from: http://www.oschadbank.ua/upload/iblock/ d9f / FS% 20SSBU% 202015% 20separate% 20ukr% 20ISA.pdf
6. Annual financial report of JSC “Oshadbank” for 2014. – [Electronic resource]. – Retrieved from: http://www.oschadbank.ua/upload/iblock/ d9f / FS% 20SSBU% 202015% 20separate% 20ukr% 20ISA.pdf
7. The annual financial report of JSC “Oshadbank” for 2013. – [Electronic resource]. – Retrieved from: http://www.oschadbank.ua/upload/iblock/ d9f / FS% 20SSBU% 202015% 20separate% 20ukr% 20ISA.pdf
8. Filippov. A Problems of improving the profitability of banks in modern conditions [Electronic resource] / A. Filippov – Retrieved from: http://www.rusnauka.com/12_ENXXI_2010/Economics/65217.doc.htm