3.7. Working capital, depreciation and tax

Working capital summarizes the net investment in short-term assets associated with a project. It’s most important components are inventory, accounts receivable, and accounts payable.

Working capital = inventory + accounts receivable – accounts payable (3.13)

Sometimes working capital increases in the early and middle years of the project. But we should not worrying about changes in working capital, we could estimate cash flow directly by counting the money coming in from customers and deducting money going out to suppliers. In other words, if we replace each year’s sales with that year’s cash payments received from customers, we do not have to worry about accounts receivable. If we replace cost of good sold with cash payments for labor, materials and other costs, we do not have to keep track of inventory or accounts payable.

Depreciation is a no cash expense: it is important only because it reduces taxable income. It provides an annual tax shield equal to the product of depreciation and marginal tax rate:

Tax shield = depreciation * tax rate (3.14)⁸

I am working through a paragraph, showing the basic steps in calculating project NPV. I try to pay attention to track changes in working capital, and stay alert for differences between tax depreciation and the depreciation used in reports to investors. It gives me possibility to add another rule which is recognized project interaction. Decision involving only a choice of accepting or rejecting a project rarely exists, since capital project can rarely be isolated from other projects or alternatives. The simplest decision normally encountered is to accept or reject or delay. A project having a positive NPV if undertaken today may.

4. Own research

4.1. Review of pharmaceutical market in Russia

The pharmaceutical industry is undergoing a period of profound transformation. Industry is moving from era of the “blockbuster drug” to new operating model known as personal medicine. While achieving success in research and development continues to define those who will be industry’s winner and loser, other issue are increasingly demanding compliant, optimizing the supply chain, achieving marketing excellence and effectively managing organizational complexity on global scale.

The pharmaceutical industry at present is dominated by large international companies because developing new medicines requires a huge-up investment. It is estimated that it costs between $500 mln. and $ 1 bln. to create a single patent medicine. To stay competitive pharmaceutical companies must have the money and infrastructure for search out new medicine to patent and sell. They must also be ready to jump on medicine that are not protected by patent produce their own versions.

3.1.1. Russian companies and them place in market

The enormous cost involved, small business rarely have the resources to create new medicines. And Russian pharmaceutical companies at present are small when compared with the international giants that dominate the industry. Most Russian companies do not yet have the recourses and facilities to support drug development. The same situation is with Russian producers of medicine.

There are 10 000 different product on the market now and Russia produce only 200-300 of the oldest and simplest one. Russia product and sell companies can not spend a lot of many on research, which creates the new medicine. It may take 10-20 years that situation to improve.

The fact that Russian pharmaceutical companies do not operate in international market, because they have not international manifested standards. Known as Good Manufacturing Practice (GMP) also hurt their compositeness because their medicines con not is sold in international market. However, Ministry of Health has mandated that Russian manufactures switch to GMP standards by January 1 2005 on their licenses will be recalled, a mandate supported by President. Even though they may conceivably be granted an extension, the drive is on to bring Russia manufactures up international standards.

Some Russian pharmaceutical companies want to force their industry to evolve, as is evidenced a group of Russian companies banding together to work for change. “Veropharm”, “Pharmsynthez”, “Nizhparm”, “Otechesveni lekarstva”, “Ufa-Vita”, “Akrihim”, and “Natur product rital” are dominated in Russian pharmaceutical market.

In the end, I could say that in Russian pharmaceutical market will be predominance Export Company a long time.