УКД 658.1

 

L. Petrenko

PhD in Economics, Associate Professor, 

SHEE «Kyiv National Economic University named after Vadym Hetman», Ukraine

 

CUMULATIVE ECONOMIC PERFORMANCE ASSESSMENT OF MACHINE-BUILDING ENTERPRISES IN UKRAINE

 

Л. А. Петренко,

к. е. н., доцент кафедри економіки підприємств,

ДВНЗ «Київський національний економічний університет ім. Вадима Гетьмана», м. Київ

 

ОЦІНЮВАННЯ СУКУПНИХ ЕКОНОМІЧНИХ РЕЗУЛЬТАТІВ ДІЯЛЬНОСТІ МАШИНОБУДІВНИХ ПІДПРИЄМСТВ УКРАЇНИ

 

The article concerns the issue of assessing the overall economic performance of machine-building enterprises in Ukraine. The analysis of indicators of structure of gross added value of the enterprises of sector of mechanical engineering is made. Further, the study identified and assessed the economic status of machine-building enterprises in Ukraine. The criteria and indicators of assessment that form the economic status of machine-building enterprises in Ukraine are highlighted. The key indicators of assessment of the economic status of machine-building enterprises are selected and analyzed. To assess the potential for further development and implementation of innovations, the indicators of the capital structure of machine-building enterprises in Ukraine are determined. The profitability and cost of capital of domestic machine-building enterprises in 2010–2016 are estimated. The indicators of capitalization of machine-building enterprises in Ukraine are of strategic importance. Taking into account the high level of the capital intensity of the machine-building industry, its long period, and the fact that the practice of using long-term loans is considered to be normal for this industry, the permanent capital ratio is adopted as an analytical indicator of the level of financial dependence/independence. As a result, conclusions were drawn regarding the current situation and the potential for the development of mechanical engineering in Ukraine. The proposed methodological approach to assessing the economic performance based on the fundamental value of the enterprises as a result of the decision-making and implementation of managerial decisions has completely proved to be efficient in terms of reflecting the real trends inherent in the business under consideration. The presented calculations of the cumulative economic performance of the machine-building enterprises on the basis of their economic status are a completely informative systemic characteristic of those processes, trends, and regularities that are true for these enterprises. Thus, based on the status indicator, we can determine not only the orientation of the enterprise development trends (as with the fundamental value) but also the qualitative level of processes and problems that are inherent in enterprises when assessed and reflect the quality and efficiency of managerial decisions made in the past. The format of various performance aspects of enterprises is the value of general indices that are calculated in the projections "Liquidity-Risk-Growth". The validity of the selected sets of indicators in each projection allows the researcher to purely focus on those problems that determine the key performance indicators considered within the specific assessment logic.

 

У статті підіймається питання оцінювання сукупних економічних результатів діяльності машинобудівних підприємств України. Зроблено аналіз показників структури валової доданої вартості підприємств сектору машинобудування. Надалі, у дослідженні виявлено та оцінено економічні статуси машинобудівних підприємств в Україні. Виокремлено критерії та показники оцінки, що формують економічний статус машинобудівних підприємств в Україні. Обрано та проаналізовано ключові показники оцінки економічного статусу машинобудівних підприємств. Для оцінки потенціалу подальшого розвитку та впровадження інновацій визначено показники структури капіталу машинобудівних підприємств в Україні. Оцінено рентабельність та вартість капіталу вітчизняних машинобудівних підприємств у 2010–2016 рр. Стратегічне значення мають показники капіталізації машинобудівних підприємств в Україні. В результаті, зроблено висновки стосовно поточної ситуації та потенціалу розвитку машинобудування в Україні.

 

Keywords: gross value added, key efficiency indicators, machine-building, capital structure, profitability.

 

Ключові слова: валова додана вартість, ключові показники ефективності, машинобудування, структура капіталу, рентабельність.

 

 

Introduction. For centuries, the economic sustainability of developed countries has been ensured through a win-win strategy — they developed an industry where technology and knowledge are concentrated. The European Commission's special communiqué stresses the need to concentrate efforts on re-industrializing the EU economy and informs about the goal to increase industry's contribution to GDP by 20% by 2020. This is due to the fact that the industry has turned out to be the most resilient sector that is more important than just a share of GDP in the context of the global economic crisis.

Analysis of recent research and publications. Recently, there has been renewed interest in industry analysis to support the global competitiveness of Ukrainian economy. In light of recent events, it is becoming more important to analyse the economic trends of machine building. For instance, there is a measure of statistical reports to conduct the above-mentioned problems, including:

- Statistical Yearbook of Ukraine for a number of years to analyse data for 2010-2016. [8; 9; 10];

- Statistical Publication "National Accounts of Ukraine" for a number of years to analyse data for 2010-2016 [5; 6; 7];

- "YouControl" [3] is an analytical system for compliance, market analysis, business intelligence, and investigation. The system generates a complete dossier for each company in Ukraine based on open data, monitors changes in state registers and visualizes relations between affiliates. The unique technology allows to obtain up-to-date (at the time of request) information about the company or FLP from more than 50 official data sources;

- "InvestfundS", Personal Investment and Finance Information Portal [1];

- SMIDA, Stock market infrastructure development agency of Ukraine [2];

- Information portal "Transport business" [4].

Formulation of the objectives. Machine-building enterprises have been an important concept in the study of the Ukrainian industrial development. The current research aims to represent cumulative economic performance assessment of machine-building enterprises in Ukraine

Results of the research. During the development of Ukraine as an independent state, the processes of the Ukrainian economy de-industrialization are intensifying. Although the share of industry in GDP has always been the largest compared to other sectors of the economy, it steadily declined from 19.1% in 2010 to 16.7% in 2015 [7; 6; 5], which is evidence of economic decline and technological backwardness. The domestic industry is usually characterized as cost-intensive and geared towards raw materials, which is confirmed by the following facts. The share of the mining industry in the gross value added structure tended to increase from 4.7% in 2001 to 4.8% in 2015, with a similar indicator for manufacturing enterprises having decreased from 19.7% to 11.9% (Figure 1).

 

Figure 1. Indicators of the gross value added structure in 2001–2015

Source: Calculated in accordance with the data: [8; 9; 10; 5; 6; 7]

 

In accordance with the proposed methodological approach to assessing the cumulative economic performance of the enterprises, the criterion for the efficient managerial decisions is considered to be the capability to generate value-added flows. The value added of machine-building enterprises of Ukraine will be assessed in accordance with the RE model. This is due to the lack of up-to-date data on debt capital payments to calculate ЕВІ. Accordingly, the indicators of cumulative economic performance will be formed as prescribed in Clause 2.1 of the dissertation but taking into account the specificity of the RE model.

During 2011–2016, the value-added of machine-building enterprises of Ukraine was negative (Table 1). The dynamics of its changes were unstable. During 2012–2014, there were declining trends. In 2015–2016, despite the unprofitability, the destructive value processes slowed down. Changing value trends clearly reflect the processes that took place in the activities of domestic machine-building enterprises. 2014 and 2015 were the most critical and challenging years when most Ukrainian machine-building enterprises lost their Russian sales market. The gradual interest of foreign investors in the domestic market of machine-building products is immediately reflected in the change of cost trends. In 2016, despite the fact that the equity spread remained negative, its loss ratio decreased from 88.95% in 2015 to 30.74% in 2016.

 

Table 1. Indicators of value-added formation^[1] of machine-building enterprises in Ukraine in 2011–2016

Source: Calculated by the author

 

In accordance with the proposed methodological approach to assessing the cumulative economic performance based on the economic status of the enterprises, the criterion of business value added lays the foundation to identify and/or differentiate of sustainable/unsustainable statuses. Since the value of residual earnings is negative during the period under consideration, the economic status of domestic machine-building enterprises cannot be recognized as absolutely sustainable.

In 2011–2013, the machine-building enterprises were profitable. Therefore, the economic status was defined as normal in accordance with the proposed scale. However, this level of normality can be considered to be rather conditional. More than half of the products made by domestic machine-building enterprises were sold in the CIS markets, to be exact, in Russia and Kazakhstan. This means that the profitability was more a consequence of the inertia triggered by the Russian consumer market. For example, Ukrainian railway car manufacturers earned billions of dollars in modernization of the Russian railway during 2009–2012 (USD 2.31 billion in 2012 alone) [4]. Today, Russia has its own plants that can fully meet the needs of the relevant internal market. This raises the question of why the billions of dollars earned were not enough to modernize their own Ukrainian enterprises and refocus them on other markets.

In order to further identify the economic status of domestic machine-building enterprises in accordance with the proposed methodological approach, it is necessary to calculate the general index in the projections "Liquidity-Risk-Growth" (I_L.R.G). For this purpose, we have made individual adjustments that are included in the economic status assessment taking into account the available background information. Thus, the projection "Growth" now includes the ratio of growth (decrease) of export volumes compared to imports (Formula 1) and the ratio of growth (decrease) of the cash flow volume compared to the volume of investments (Formula 2) (Table 2) instead of the ratio of growth (decrease) of operating income and expenses.

 

Taking into account the I_L.R.G calculation, the economic statuses of domestic machine-building enterprises were defined as follows (Fig. 2): normal economic status in 2011–2013; unsustainable economic status in 2014, 2016; economic crisis in 2015.

 

Figure 2. Identification of economic statuses of machine-building enterprises in Ukraine, in 2011 –2016

Source: Calculated and formalized by the author

 

A deeper analysis of the factors that determine the economic statuses of machine-building enterprises (Table 3) makes the following generalizations:

  

Table 2. Assessment criteria and indicators that form the economic status of machine-building enterprises in Ukraine

Source: Prepared by the author

 

Table 3. Assessment indicators of economic statuses of machine-building enterprises in 2011–2016 

Source: Calculated by the author

 

- During 2011–2013, the overall liquidity index of machine-building enterprises was characterized by a high value of compliance with normal indicators in the range of 0.78–0.87. Since 2014, the situation has undergone dramatic negative changes and the liquidity index has dropped to 0.61. That is, we can state that all activity processes are interrelated, and the profit performance, as the main source of internal funds, directly affected the characteristics of liquidity of enterprises.

- As with the liquidity situation in the projection "Risk", the general index was quite high, in the range 0.73–0.75, during the period under consideration. Since 2014, there has been a downward trend of a corresponding value to 0.56 in 2016, which is considered to be a critical index value (<0.6) within the identification scale. First of all, this situation is caused by the critically low value of the permanent capital ratio. It should be noted that the leverage ratio was low (0.13–0.36) compared to the normal limits adopted by Ukrainian scientists and practitioners (>0.5).

 

Figure 3. Indicators of the capital structure of machine-building enterprises in Ukraine in 2010 –2016

Source: Calculated by the author

 

-  Taking into account the high level of the capital intensity of the machine-building industry, its long period, and the fact that the practice of using long-term loans is considered to be normal for this industry, the permanent capital ratio is adopted as an analytical indicator of the level of financial dependence/independence. However, the analysis of financing sources indicates that the share of long-term loan sources fluctuated at the level of 0.13–0.20 during 2011–2016, and the percentage of paid loan sources ranged from 0.20 to 0.38. From the perspective of ensuring the formation of stocks of machine-building enterprises, it can be highlighted that the permanent capital could not meet the stock financing needs during 2011–2016, so the stock financing need was partially covered by short-term loans, which increases the level of financial risk in terms of dependence on external creditors in accordance with normal financial ratios.

- In the projection "Growth", the values of the corresponding index became critically low in 2014–2015 that were the most difficult times for domestic machine-building enterprises. If we analyze the situation as to comparing the return on working capital and the cost of capital, it should be noted that the dynamics of weighted average cost of capital tends to decrease (Figure 4), which is explained primarily by a decrease in the share of equity in its total value.

 

Figure 4. Profitability and cost of capital of domestic machine-building enterprises in 2010–2016

Source: Calculated by the author

 

In addition, the share of free financing sources of machine-building enterprises in the form of accounts payable is almost 50% in the financing structure, with the share of accounts receivable not exceeding 30%. Return on operating capital did not cover the corresponding cost of capital, but the machine-building enterprises generated positive cash flows throughout the period under consideration, which covered the liquidity shortage in terms of meeting the need to finance current and investment activities. The growth projection is the most informative and combines various aspects of enterprise activity. Thus, the ratio of growth rates of current assets and debts of enterprises characterizes the solvency aspect that is within the normal range for domestic machine-building enterprises during the period under consideration. The ratio of growth rates of cash flows and investments, as well as the net cash flows for owners and capital needs, characterized the level of investment opportunities of machine-building enterprises, which tended to be unstable during 2011–2016. The ratio of growth rates of exports and imports of machine-building products is a rather informative characteristic of many aspects of enterprise activity from the level of product competitiveness to machine-building enterprises' capability to adapt to unstable conditions of the external environment.

The trends of the changing fundamental capitalization of machine-building enterprises of Ukraine (Figure 5) clearly reflect the revealed development trends. The fundamental capitalization dynamics were growing prior to 2012, but since 2013, there have been stable destruction processes. In 2016, compared to 2010, the fundamental capitalization of domestic machine-building enterprises decreased more than twice from UAH 39,967 million to UAH 18,942 million.

 

Figure 5. Indicators of capitalization of machine-building enterprises in Ukraine in 2010–2016

Source: Calculated by the author

 

When summarizing the implementation results of the proposed methodological approach to assessing the cumulative economic performance of domestic machine-building enterprises, we can draw the following conclusions:

- The proposed methodological approach to assessing the economic performance based on the fundamental value of the enterprises as a result of the decision-making and implementation of managerial decisions has completely proved to be efficient in terms of reflecting the real trends inherent in the business under consideration.

- The presented calculations of the cumulative economic performance of the machine-building enterprises on the basis of their economic status are a completely informative systemic characteristic of those processes, trends, and regularities that are true for these enterprises. Thus, based on the status indicator, we can determine not only the orientation of the enterprise development trends (as with the fundamental value) but also the qualitative level of processes and problems that are inherent in enterprises when assessed and reflect the quality and efficiency of managerial decisions made in the past.

- The format of various performance aspects of enterprises is the value of general indices that are calculated in the projections "Liquidity-Risk-Growth". The validity of the selected sets of indicators in each projection allows the researcher to purely focus on those problems that determine the key performance indicators considered within the specific assessment logic.

Conclusions. The summarized trends and assessed cumulative and partial economic performance of machine-building enterprises in Ukraine allow us to draw the following conclusions with regard to the features and prospects of their development:

- Scientists and practitioners agree that the advanced machine building is a technology driver that allows one to place the country in an innovative and economic environment that ensures sustainable economic growth in the long run. During the last 25 years, the development trends of domestic machine building are downward and destructive, and the economic status of the resource potential, which characterizes this sector of industrial activity, does not allow us to made optimistic forecasts as to the high-tech positioning of Ukraine in the near future.

- The domestic machine building became critical in 2014–2015, which is primarily due to the loss of the Russian market that accounted for 52% of exports of machine-building products worth USD 6.8 billion in 2012. The enterprises did not manage to quickly refocus on other markets due to inefficient managerial decisions in the past, which resulted in adaptation inertia and outdated technical and technological infrastructure of modern domestic machine-building.

- During 2011–2016, all indicators characterizing the economic performance of machine-building enterprises in Ukraine at different levels of generalization have downward dynamics, and analysis of their causation and interconnection does not allow us to make optimistic forecasts as to the near-term development prospects of machine-building enterprises on an innovative basis. The positive trends that have been seen over the last three years and related to the construction of new machine-building plants by foreign companies, on the one hand, open new markets for domestic machine-building products and, on the other hand, one cannot but mention the fact that Ukraine sells cheaper man-hours and therefore keeps the raw material orientation of machine building development.

- The development level of the resource base available to the domestic machine-building enterprises and the current state of innovation potential suggest that the problem cannot be resolved without the comprehensive state support for this type of industrial activity in the form of the state import substitution program. Within this program, priority should be given to machine-tool building, electronics, and instrument making. The state should comprehensively contribute to the creation of favorable conditions that help to develop unique machine-building industries (Turboatom PJSC, Motor Sich PJSC, ZaporizhTransformator PrJSC, State Enterprise "Gas Turbine Research & Production Complex "Zorya"-"Mashproekt"), which are independent of the Russian market, and their products are known and in demand in world markets. The relevancy of the state import substitution program in the machine-building sector is conditioned by the fact that, if implemented, the innovation and investment processes must be activated in related types of industrial activity. The increased number of machine-building enterprises involved in the innovation multiplier mechanism lays the foundation to ensure the sustainable growth of not only the machine-building sector but also the economy of Ukraine in the long run.

 

Література.

1.  «InvestfundS». Информационный портал о личных инвестициях и финансах - Режим доступа : http://investfunds.ua/markets/stocks/Turboatom/

2.  SMIDA. Stock market infrastructure development agency of Ukraine. ПАТ "Турбоатом". –  Режим доступа: https://smida.gov.ua/db/participant/05762269

3.  Youcontrol. Аналитическая информационная платформа. – Режим доступа: https://youcontrol.com.ua/ru/

4.  Подолянец, Виктория. “Война Машин.” Информационный Портал «Транспортный Бизнес» – Режим доступа: tbu.com.ua/digest/voina_mashin.html.

5.  Статистичний збірник "Національні рахунки України за 2013 рік". Київ, Державна служба статистики України : 2015. - 155 р. –  Режим доступа: ukrstat.gov.ua/druk/publicat/Arhiv_u/03/Arch_nr.htm

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References.

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