MINISTRY OF EDUCATION AND SCIENCE RUSSIAN FEDERATION
PLEKHANOV RUSSIAN UNIVERSITY OF ECONOMIC
International business school
FIELD RESEARCH
CURRENT ASSET MANAGEMENT IN THE ENTERPRISE
Student: Luchkiv L. A.
Supervisor: Filippova L. B.
Moscow
2011
Abstract
The crisis of 2008 still affects business-to-business companies. Many of them have problems with current assets in general and with accounts receivable in particular. In a given paper there is conducted a field research on the example of a telecommunication equipment producer. In the first chapter there can be found the methodology used for research and then comes the analysis of company’s financial coefficients. There also can be found a policy of current assets management improvement based on the analysis.
Content
Abstract 1
Introduction 2
Methodology 4
Field research 7
Conclusion 17
Bibliography 18
Introduction
The property of business entity consists of fixed and current assets, representing its actual assets, due to which the company carries out its economic activities and by which it has the ability to grow and expand. The state and effectiveness of fixed and current assets are one of the main conditions of success of the enterprise. The development of market relations in our country defines new terms of their organization. High competition, the need to quickly and effectively adapt to rapidly changing market conditions are forcing companies to change its policies toward working capital, search for additional reserves of their efficiency, increase turnover, forcing the company to optimize the structure and volume of current assets.
The problem of lack of current assets becomes the primary concern of financial services and enterprise management. Now it depends on them, how properly and efficiently current assets of the enterprise are organized, how effective are the methods used when working with suppliers, customers, how well planned and supported are reserves, controlled by the collection of receivables, and so on.
The aim of this work is to develop recommendations to improve the efficiency of working capital for the specific example of Russian company.
To achieve the aim there has been done the following:
-
Theoretical background of organization and management of current assets have been studied;
-
Various options of working capital formation and current assets financing have been explored;
-
Analysis of current assets management in the specific entity has been performed
-
Recommendations to improve the efficiency of working capital according to peculiarities of firm activity and its current assets condition have been developed.
Theoretical and methodological basis for the study consists of classical and contemporary works of Russian and foreign economists in the field of working capital management, legislation and regulatory materials.
Methodological basis of graduate research consists of methods of financial analysis: the horizontal and vertical analysis of financial statements, methods, techniques and tools of mathematical statistics: collection and grouping of statistical data analysis and comparison of time series. In the practical part of the research there were used computational and analytical methods, the methods of structural and dynamic analysis, grouping and comparison of modeling techniques.
Information base for research are data of financial and management reporting, information from periodicals, monographs and textbooks of domestic and foreign experts in the field of financial management.
SPETSSTROY-SVYAZ is the leading company of the Taganrog-based Proton-SSS Science Production Enterprise Holding, Russia's largest developer and producer of digital telecommunication equipment. The company was founded in the city of Taganrog on October 1, 1996, and has been the exclusive exporter of the Proton-SSS telecommunication platform for more than 14 years.
The main production of the company is a telecommunication platform Proton-SSS. The telecommunication platform Proton-SSS is self-developed hardware-software complex with using electronic components that are produced by the leaders of telecommunication and computer market.
In the segment of telecommunication equipment SPETSSTROY-SVYAZ Ltd had 0,2% of total turnover in 2008 and 0,24% in 2009.
In the segment of fixed line telecommunication equipment market share of SPETSSTROY-SVYAZ Ltd was 0,82% n 2008 and 1,1% in 2009.
Like all business-to-business companies in Russia, SPETSSTROY-SVYAZ faces problems concerning accounts receivable.
In order to increase the efficiency of its current assets company SPETSSTROY-SVYAZ should implement the components associated with payment of goods sold to the motivating system of managers.
Methodology
Financial Ratio analysis.
Financial condition of the organization can be assessed in short and long term. In the first case assessment criteria are the liquidity and solvency of enterprise, i.e. ability to timely and fully perform payments of short-term obligations. Examples of these operations are payments to employees for wages, to suppliers for the received material assets and services rendered, with bank for loan, etc.
There are different methods of analysis of financial condition. In our country a method based on calculation of a system of ratios and its use in a space-time analysis is broadly used. Ratios can be calculated directly according to the financial statements. Analysis of financial ratios consists in comparison of their values with the baselines, as well as in studying of their dynamics during the reporting period and for several years. Financial ratios used to assess the financial sustainability of the enterprise are largely based on indicators of financial profitability of the organization, management efficiency and business activity.
Liquidity assessment
Under the liquidity of an asset the ability to transform into cash is to be understood. The degree of liquidity depends on duration of the time period during which this transformation can be carried out. The shorter the period, the higher is the liquidity of the asset.
For the liquidity of the commercial organization it usually means that it has current assets in the amount theoretically sufficient to repay short-term debt even though the violation of maturity under the contract. Liquidity is quantitatively characterized by special relative indicators - liquidity ratios.
Solvency means that there is enough cash and cash equivalents in a commercial organization to payment of accounts payable, requiring the immediate redemption. Thus, the main features of solvency are:
* Availability of sufficient funds on the account;
* Lack of overdue debts.
Liquidity and solvency are not identical to each other. Liquidity ratios can characterize the financial situation as satisfactory, but in essence this assessment may be misleading if the current assets have a significant share in the illiquid assets and overdue receivables.
Balance sheet liquidity is defined as the degree of coverage of the organization liabilities by its assets, the term of transformation to money of which matches obligations maturity.
Depending on the degree of liquidity, i.e. rate of conversion into cash, assets are divided into the following groups:
A1: The most liquid assets. Cash and short-term investments;
A2: Short-term accounts receivable;
A3: Other current assets
A4: Fixed assets
In turn, the liabilities are grouped by the term of their payment as follows:
L1: Accounts payable
L2: Short-term debts and provisions for liabilities and charges
L3: Other balance sheet items that form the borrowed capital
L4: Equity capital
To repay current obligations various kinds of assets with different turnover, i.e. the time required to turn them into cash, can be used. So depending on what types of current assets are taken into account the liquidity is evaluated using different ratios. The general idea of such an assessment is to compare current liabilities and assets used for the repayment. Current assets (liabilities) include those with maturity up to one year.
Analysis of business activity
Calculation of turnover of any assets is held by dividing the revenue of the period by the average value of these assets over the period. Since the company's revenue is formed as cumulative total for the year and the cost of an asset is the torque figure (i.e. the value on the balance sheet date), the comparison of turnover indicators for different time intervals (for example, a year and the first quarter) is incorrect. In this regard, an analysis of turnover indicators based on annual data for 2005-2009 is held.
Interview
In order to get a competent opinion there was conducted an interview to finance director of SPETSSTROY-SVYAZ Ltd., Victoria Ivanilova. She has been working at the company for more than 7 years starting from an accountant.