AnalysisoftheCompanysFinancialStrategy

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The Ministry of Education and Science of the Russian Federation Federal State Budgetary Institution of Higher Education

Plekhanov Russian University of Economics

Faculty of Finance

Department of Financial Management

«Admitted to Defense»

Head of Financial

Management Department

Pyatanova Victoria Ivanovna

_______________________

(signature)

«____» _____________2018

Graduation Qualification Work

Direction 38.04.08 « Finance and Credit »

Master Program « Financial Analytics »

on topic Analysis of the Company's Financial Strategy

Prepared by Abdul-Hadi Hasan Sami

Group 17ОМA-01/16FA

Scientific Supervisor

____________________________

(Full name, degree, title, position)

______________

(signature)

Author ______________

(signature)

Moscow – 2018

Electronic copy available at: https://ssrn.com/abstract=3194478

Electronic copy available at: https://ssrn.com/abstract=3194478

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INTRODUCTION

Nowadays, wholesale companies face some serious and severe problems not only in terms of financial performance, but also with the continued business life and presence on Russian market. Sanctions imposed in 2014 threaten companies' financial performance and in 2015, 19.6% of wholesale enterprises were nonprofitable1.

The wholesale branch has always been a significant part of Russian economy. According to Federal State Statistics Service, the wholesale trade share of fixed assets is 3.4% from all assets which are a part of the national wealth. Moreover, in 2015, the share of personnel employed in this branch was 19% of all the employed people. 55.4% of all the small business enterprises are wholesale companies and 53.6% of entrepreneurs act within wholesale branch2. Beside this, the wholesale companies, especially those who specialize in import, attract foreign investment. All these lead to GDP growth not only in wholesale branch, but also in allied areas such as logistics. While embargo is continuing, this may seem inapplicable. But in terms of prevent companies from quitting Russian market and overcoming crisis, it matters. So, from the governmental and economic perspective, the choice of this branch and the importance of its analysis is extremely relevant3.

On the other hand, from the companies’ perspective, the research is relevant as it is financially reasonable to overcome recession instead of quitting Russian market. In other words, imprecise sanctions duration confuses companies, yet it is

128.Glavatskaya, N., Mezentseva, К., & Shanskaya, A. (2016). Russian Economy in 2015 Trends and Outlooks. Gaidar

Institute for Economic Policy (37), 440.

256.Zhao, M., Childers, B., & Soffa, M. (2006, September). An Approach Toward Profit-Driven Optimization. ACM Transactions on Architecture and Code Optimization (TACO), 3(3), 231-262. doi:10.1145/1162690.1162691

320.Chernysheva, Y., Shepelenko, G., Gashenko, I., Orobinskaya, I., & Zima, Y. (2017). Business Analysis as an

Important Component of Ensuring Enterprise’s Economic Security. European Research Studies Journal, XX(3B), 250

– 259.

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much more reasonable to meet the crisis instead of selling all the assets, offices and other property.

Even though the wholesale commodity turnover of wholesale branch increased, the share of dairy products dropped in 20144. The imposed embargo was not predictable and for that reasons got each company unprepared. For that reason, their financial capability was under the threat and some of them was unable to overcome crisis and occurred to face bankruptcy. Others, who did not face bankruptcy, are quite on the edge of it and have net loss or have serious financial performance drawbacks. For that reason, they need proper financial strategy to overcome recession.

The main subject area is financial strategizing and the object area is financial indicators of FrieslandCampina, LLC during embargo period 2014-2015 in Russian Federation. The main research aim is to develop the most suitable financial strategy for the wholesale company which will be applicable for crisis and recession overcoming instead of quitting Russian market.

To achieve the aim, the following tasks set and completed:

1)Analyze external and internal company's environment.

2)Evaluate the company financial performance through the whole financial analysis.

3)Conduct strategic financial analysis.

4)Overview and examine previous research papers dedicated both to financial strategizing and strategic financial analysis conduction.

5)Conduct competitive analysis.

6)Conduct comparative analysis.

413.Barsukova, S. (2016, November 28). Why There is Not Enough Milk in Russia. Retrieved from IQ: https://iq.hse.ru/en/news/197214680.html

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7)Conduct full financial report analysis with the use of balance sheet, income statement, cash flow statement and changes in equity statement.

8)Conduct full costs analysis using ABC/XYZ, manageable type and financial report analysis.

9)Estimate enterprise bankruptcy probability to indicate financial strategy type.

10)Provide a full financial strategy through the optimization.

Erhan research paper provide developments which can be evaluated as an indicator that the accounting system will be used more effectively during the strategic management process5. Pavlíček research paper develops a methodology of strategic model implementing into the category of micro, small and medium-sized enterprises (SMEs). The methodology recommends procedures while solving an up- to-date worldwide task of the definition of the financial strategy6.

The main methods considered are regression analysis, financial analysis and comparative analysis. There is also significant scarcity of research papers dedicated to proper financial strategy development. Moreover, not so many researches dedicated to financial strategizing in terms of Russian embargo. The topic of the thesis and methodology is actual and reflects modern financial strategizing methods.

The new science point is explained by the new approach to financial strategizing, especially the strategic financial analysis. In other words, the econometric analysis within financial strategy, especially regression analysis of the revenue and main factors that have an impact on the analyzed company will lead to not only proper financial strategizing, but also to more precise forecast7. It would be

526.Erhanb, D. (2013). Structuring Strategic Management with Ratio Analysis Method: a Case Study in The Transition to SME TFRS Process. Procedia - Social and Behavioral Sciences, 947 – 955.

645.Pavlíček, J. (2009). Corporate Financial Strategy in SMEs. Proceedings of the World Congress on Engineering, II,

725.Elliott, J. (1972, March). Forecasting and Analysis of Corporate Financial Performance with an Econometric Model of the Firm. Journal of Financial and Quantitative Analysis, 7(2), 1499-1526. doi:10.2307/2329931

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valuable to provide comparative financial analysis with another wholesale company to indicate similarities and differences in strategies and copy the best experience. All these statements strengthen the research impact.

First chapter dedicated to previous research analysis and provides information about financial strategizing methodology and data description, second chapter overviews strategic financial analysis and the last one supposes financial strategy based on the financial analysis made.

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CHAPTER 1. THEORETICAL ASPECTS OF FINANCIAL

STRATEGIZING METHODS

1.1 Framework and development of financial strategy

Financial strategy is a crucial aspect of each company’s performance. According to it, all the future incomes and expenses are evaluated and the whole development perspective is settled8. The thematic justification is also proved by complicated conjuncture within Russian economy in terms of imposed sanctions.

This part aimed to examine theoretical studies in the field of financial strategy development. The recession may be questionable, and suppositions may occur both in external and internal environment. The claims preventive anti-crisis diagnostics is a vital strategic instrument which allows disclosing all the hidden problems and issues. The enterprise should regularly conduct SWOT-analysis, compose financial potential matrix and correct its’ strategy. The unquestionable advantage is considering all the anti-crisis strategy types and the possible ways for solving it. The instruments are split into groups for each strategy required. The main drawback detected is the lack of preliminary financial analysis methods allows identifying which anti-crisis strategy must be chosen.

The enormous work has been done in terms of studying this sphere for the last years and some authors such as Brigham & Ehrhardt 9 established the foundation for strategic financing study. However, due to rapid changes in the financial sphere, the pursuance of the research seems quite challenging and for that reason not so many papers are dedicated to the financial strategy development of wholesale companies.

The scheme of financial strategy development in different approaches is quite alike, yet the procedure of strategic financial analysis differs significantly and there

819.Calandro, J., & Flynn, R. (2007). On financial strategy. Business Strategy Series, 8(6), 409-417. doi:10.1108/17515630710684628

9 18.Brigham, E., & Ehrhardt, M. (2013). Financial Management: Theory & Practice (14th ed.). Cengage Learning.

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are lots of apt ways that may be considered. The development of financial strategy and development of anti-crisis financial strategy approaches have been chosen according to their high popularity and applicability, also to identify its correspondence.

The literature review starts with the overview of method that supposed stabilization of financial performance though particular actions. The first approach of strategy development is based on two-steps which includes current financial situation analysis, and several stabilize anti-crisis processes. It covers all areas of performance and allow to manage internal resources of a company with keeping up stable cash flow for liquidity10. This approach also provides effectiveness and profitability of the main performance and manage debts and financial risks. These steps include all of risks decreasing, cash flows optimization, and sales encouragement11.

The cases of crisis and its’ signals may be detected with the proper monitoring. The decreasing of capital exploitation effectiveness, the drop of profitability which leads to irrational current assets usage. Financial instruments that should be used for controlling the company performance includes liquidity, solvency coefficients and bankruptcy estimation models12. There are plenty of effective methods and instruments attain phenomenal results to overcome company crisis13.

The effectiveness of anti-crisis campaign is highly depending on a speed and a quality of defining the crisis reasons. In other words, it is vital to monitor financial

1038.Mendelson, A., & Pedersen, L. (2006). Liquidity and Asset Prices. Foundations and Trends in Finance, 1(4), 269– 364.

1149.Si, S. (2011). Research on Strategy Management of P Shipping Company in the Financial Crisis. Social Science Research Network. doi:10.2139/ssrn.2801603

1242.Omelka, J., Beranová, M., & Tabas, J. (2013, 12 24). Comparison of the Models of Financial Distress Prediction. Acta Univ. Agric. Silvic. Mendelianae Brun, 61(7), 2587-2592. doi:10.11118/actaun201361072587

1337.Maua, V., & Ulyukaevb, A. (2015). Global Crisis and Challenges for Russian Economic Development. Russian Journal of Economics, 1(1), 4-29. doi: 10.1016/j.ruje.2015.05.003

Electronic copy available at: https://ssrn.com/abstract=3194478