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The impact of solvency and business activity on profitability of mining companies in Ukraine

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Category: Contens №4 2020

Last Updated on 05 September 2020

Published on 30 August 2020

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Authors:

N. G. Vyhovska, orcid.org/0000-0001-7129-6169, Zhytomyr Polytechnic State University, Zhytomyr, Ukraine, e-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.

A. Y. Polchanov, orcid.org/0000-0001-6019-9275, Zhytomyr Polytechnic State University, Zhytomyr, Ukraine, e-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.

T. P. Ostapchuk, orcid.org/0000-0001-9623-0481, Zhytomyr Polytechnic State University, Zhytomyr, Ukraine, e-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.

V. V. Dovgaliuk, orcid.org/0000-0003-2732-8818, Zhytomyr Polytechnic State University, Zhytomyr, Ukraine, e-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.

Naukovyi Visnyk Natsionalnoho Hirnychoho Universytetu. 2020, (4): 164-170

https://doi.org/10.33271/nvngu/2020-4/164

повний текст / full article

Abstract:

Purpose. To identify the relationship between the profitability of mining companies and their solvency as well as business activity for making sound management decisions based on the formation of a formalized forecasting model, taking into account the scale and type of economic activity.

Methodology. The empirical basis of the study was formed based on key financial statements of 75 mining companies in Ukraine in 2014–2018 presented by the Youcontrol system. To achieve this goal, using the tool of correlation-regression analysis, a linear regression model was developed. It describes the dependence of the profitability of the assets on the equity ratio (share of equity in the total volume of sources of financing), asset turnover (ratio of revenue to average annual assets) based on the principal activity according to the Classifier of Economic Activity) and the scale of the business (based on annual revenue).

Findings. The proposed formalized forecasting model makes it possible to identify and evaluate the relationship between the profitability of mining companies and their solvency and business activity, taking into account the influence of the economies of scale and the characteristics of economic activity. Using the proposed model allows us to draw the following conclusions on planning directions for attracting internal or external sources of financing by companies:

- firstly, focusing on internal sources of financing of companies will have a greater effect compared to the use of credit resources (given the overload of companies in the extractive industry with debts, when developing a financial strategy, the priority should be the restructuring of obligations, the conversion of debt into the property, securitization);

- secondly, taking into account the influence of the factor of economies of scale in the mining industry determines the priority of state policy to support small businesses and create conditions for increasing the concentration of capital;

- thirdly, given the city-forming nature of companies in this industry, it is justified to maintain existing and launch new programs of financial support for companies, taking into account social consequences of the possible bankruptcy of such companies.

Formalization of the proposed areas allows mining companies to choose their future financial development strategy.

Originality. A formalized forecasting model is formed that allows identifying and evaluating the relationship between the profitability of mining companies and their solvency, as well as business activity, taking into account the influence of scale factors and characteristics of economic activity. Using the proposed model will contribute to the adoption of effective decisions on planning directions for attracting internal or external sources of financing by companies, choosing a future strategy for their development based on state financial support programs, introducing innovative forms of financing (securitization) or attracting foreign investment.

Practical value. It is possible to predict the profitability of the assets of the mining companies depending on the possible changes in their financial condition and business activity due to the inflow of foreign investments, taking into account the scale and type of economic activity, as well as to maximize the use of the existing financial potential of the company and justify the priorities of state support.

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