Analysis of financial policies of modern TNCs: their features

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ANALYSIS OF FINANCIAL POLICIES OF MODERN TNCs: THEIR FEATURES.

Keywords: financial policies, transnational corporation, TNCs, MNCs.

Аннотация

АНАЛИЗ ФИНАНСОВЫХ ПОЛИТИК СОВРЕМЕННЫХ ТНК: ИХ ОСОБЕННОСТИ.

Исаков Рональд Викторович, Финансовый университет при Правительстве РФ.

Макрушина Анна Витальевна, Финансовый университет при Правительстве РФ.

Наминов Александр Олегович, Финансовый университет при Правительстве РФ.

Целью данного исследования является сравнительный анализ современных стратегий транснациональных корпораций в Российской Федерации. В статье анализируются основные показатели, оказывающие прямое влияние на деятельности транснациональных корпораций (ТНК) в чёрной металлургии. Актуальность обусловлена рассмотрением роли металлургических компаний в международной торговле. В ходе исследования использовались такие методы, как статистический анализ и сравнение. Для сбора информации мы используем теоретические и эмпирические методы.

Ключевые слова: финансовые политики, транснациональная корпорация, ТНК, МНК.

Introduction

Transnational corporations (TNCs) are currently the most essential element in the expansion of the world economy and international economic relations. The extraordinary growth in the number of TNCs and their branches all over the world is a characteristic feature of modern times. According to the World Bank's statistics, there are already about 100 thousand TNCs in the world. If the criteria for defining TNCs are not revised, their number by 2022, according to World Bank experts, could reach 160 thousand.

The main problems of TNCs in Russia are their limited innovative activities in Russian subsidiaries and inadequate attention to export opportunities of products produced in the Russian divisions of the companies outside the CIS, import restrictions of certain products, which are intermediate goods in the production chain of TNCs, as well as the decline in the purchasing power of the population.

We conduct our own comprehensive research into the development of modern TNCs and their main characteristics.

Methods.

In the framework of this study, we used general scientific and special, qualitative and quantitative methods (statistical analysis, ranking, comparison, time series analysis). Theoretical (content-analysis) and empirical (work with official documentation and international databases) methods of information collection were used, as well as graphic method - construction of diagrams and tables.

Main part

Transnational corporations (TNCs) or multinational corporations (MNCs) are the staple of economic relations in the world, carrying out most of the varieties of international commercial transactions. According to Rugman, MNCs should include companies that produce and sell their own products in more than one state and form value-added. As a rule, they include the head company, which is located in the same state of origin, as well as 5 subsidiaries located in the host states Rugman, A.M.: International Business. Pearson UK: Pearson Education Ltd., 2012. 6th ed. 752 p..

The financial policy of the enterprise aims to fulfill the main goal - to build an efficient way of managing the corporate finances of the organization, which is aimed at achieving long-term (strategic) and short-term (tactical) goals will be undertaken. It is possible to assess the effect of the chosen type of financial policy by calculating the indicators of financial efficiency of interaction between departments of the enterprise, the proper use of funds, human and material capabilities. transnational corporation metallurgical trade

The essence of financial policy is its focus on achieving the strategic objectives of the enterprise - maximizing profits and minimizing costs. Multinational companies are striving to improve production efficiency at their deposits and ensure growth with minimal risk.

It is accepted to distinguish three types of financial policy: conservative, aggressive and hedging. Each of these approaches has advantages in one way or another and has a bearing on rational combination of profitability and risk for the business. Hedging approach is an ideal method with moderate risk and profitability, but the other two approaches can be inferred to mean extreme level strategies.

To grasp the of an entity's financial policy more clearly, suffice to refer to the balance sheet, which displays the results of the organization's activities. The left side of the balance sheet shows the assets of the company, the right side - data on the financial sources of formation of this property. Similarly, the financial policy of the company should consist of two main directions - management of property and management of capital of the enterprise (Figure 1).

Figure 1. Company's financial policies sections

The methodological recommendations on the elaboration of financial policy of the Ministry of Economic Development of the Russian Federation describe the main strategic tasks of financial policy development and determine the key directions of the financial policy of the organization. More specifically, the analysis of the financial and economic condition of the enterprise; development of accounting and tax policy; elaboration of credit policy of the enterprise; working capital management, payables and receivables; cost management, including the choice of depreciation policy and the last one is selection of dividend policy.

If we consider the negative aspects of transnational corporations, it can be noted that their oligopolistic orientation can weaken market potential and cause unreasonable profits. In order to maintain their position, MNCs often advocate different authoritarian approaches to governing a country. Additionally, it is in their interest to increase the dependence of developing countries on already developed.

In general, the negative aspects of the functioning of transnational corporations are as follows:

- the dependence of the state's economy on MNCs;

- the location of environmentally polluting production facilities within certain countries;

- the possibility for MNCs to avoid taxation through transfer pricing, as well as higher remuneration to other parts of the company, etc.

It is no exaggeration to say that without a well-developed metallurgy it is impossible to make technical progress in almost any industry, so almost all industrialized countries pay special attention to the iron and steel industry. At the moment the leading TNCs in ferrous metallurgy are China Baowu Group (115.29 Mt of steel World Steel Association: Top steel-producing companies in 2020. [Electronic resource] - URL:https://worldsteel.org/steel-by-topic/statistics/top-producers/), ArcelorMittal (78.46 Mt) and HBIS Group (43.76 Mt) in 2020. Russian companies were included in the global rating as well. These are Nopolipetsk Steel (NLMK Group) (22^nd place, 15.75 Mt), EVRAZ (30^th place, 13.63 Mt), Magnitogorsk Iron & Steel Works (MMK Group) (37^th place, 11.57 Mt).

Based on data from 2020 to February 2022, crude steel production volumes are quite fluctuating (Fig. 2). CIS produced 7.7 million tons, down 5.8% (compared to 2022 to 2021). The EU (27) produced 11.7 Mt, down 2.5%. Europe, Other produced 3.8 Mt. down 2.7%. The Middle East produced 3.5 Mt, up 2.8%, North America produced 8.8 Mt, up 1.8%.

So, the most significant indicator of the work of the ferrous metallurgy is the number of smelted steel. In 2021, Russian enterprises produced 62.5 million tons and ranked 5^th in the world leaders in steel production.

The most illustrative indicator is EBITDA, because it allows comparison of organizations from the same sector of economy that operate in different conditions, as it excludes the impact of tax burden, debt payments and paper expenses. This metric used to evaluate a company's operating performance. The formula is the following: EBITDA = Net income + Taxes + Interest Expense + In this research, we compared the profitability of transnational corporations such as EVRAZ and NLMK. Moreover, the EBITDA margin was also taken for a full-fledged analysis. This parameter is calculated according to the next formula:

The data are presented in more detail sequentially in Figure 3 and Figure 4.

Figure 4. Free cash flow and margin dynamics Source: NLMK Group Q4'21 IFRS Results

According to this graph, total segment EBITDA amounted to $5,015m, EBITDA margin increased to 35.4%. The increase in EBITDA was primarily attributable to higher steel, vanadium and coal product sales prices as well as better sales of flat-rolled steel products resulting from improving market demand in North America.

Figure 4. Free cash flow and margin dynamics Source: NLMK Group Q4'21 IFRS Results

It shows that EBITDA declined by 23% qoq to $1.8 bn driven by lower price spreads and introduction of temporary exports duties. Thus, both companies have performed well financially over the past few years, even in spite of the pandemic, which has directly reduced sales. Nevertheless, NLMK's EBITDA margin is higher than Evraz's, which means that the business is steadily generating profits and properly reducing operating costs.

Taking into account the introduction of innovations in metallurgical companies, Russian firms have intensified their own decarbonization programs and integration of environmental, social and governance ESG factors into them. ESG criteria are at the forefront of corporate strategies, due to investor, customer and regulator expectations. The topic has been gaining momentum and is expected to accelerate in the coming years.

Conclusion

Finishing the work done, we can conclude that transnational corporations contribute immensely to the development of the world economy and international trade.

While writing a scientific paper:

1) Statistical data were studied for the analysis of TNCs;

2) Comparative, statistical, descriptive, content and graphical analysis were used;

3) Work was done with the use of official documents;

4) Comprehensive studies of the development of modern TNCs and their main characteristics were carried out.

Hence, the essence of financial policy is maximizing profits and minimizing costs of TNCs.

Also, we have considered the negative aspects of transnational corporations, which are factories, which pollute the environment; the possibility for MNCs to avoid taxation through transfer pricing, as well as higher remuneration to other parts of the company.

We found out that the leading TNCs in metallurgy are China Baowu Group; ArcelorMittal and HBIS in 2020. In addition to it, we have analyzed financial policies of Russian corporations included in the global rating: Nopolipetsk Steel (NLMK Group) and EVRAZ.

In our scientific research we took NLMK and Evraz and compared their profitability, EBITDA. After our analysis, it is clear that the EBITDA decreased by 23% to $1.8 billion. Thus, both companies have performed well financially over the past few years, even in spite of the pandemic, which has directly reduced sales. Nevertheless, NLMK's EBITDA margin is higher than Evraz's, which means that the business is steadily generating profits and properly reducing operating costs.

List of references

1. Financial results for the 4th quarter of 2021 for NLMK according to IFRS standard [electronic resource].- https://nlmk.com/upload/iblock/514/NLMK_Presentation_IFRS_Q4_2021.pdf

2. Financial results for the of 2021 for EVRAZ according to IFRS standard [electronic resource].- https://www.evraz.com/upload/iblock/079/EVRAZ_2021_financial_results_presentation.pdf

3. Budanov I.A. Processes of metallurgy adaptation to changes in external conditions of production functioning // Scientific works: Institute of National Economic Forecasting of the Russian Academy of Sciences. Moscow: MAKS Press, 2009. pp. 223-248

4. Igor Gurkov, Zokirjon Saidov. The past, the present, and the foreseeable future of Russian manufacturing subsidiaries of Western multinational corporations. - 2020. - https://doi.org/10.1177/1879366520949886

5. Drane v S.Ya. Comparison of the Largest Metallurgical Companies Inst itutional Features and Development Trends in Russia and in the World// Scientific works: Institute of Economic Forecasting of the Russian Academy of Sciences. 2021. Pp. 240-263. DOI: 10.47711/2076-318-2021-240-263.

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7. Dozortsev V.M. Digital transformation of production in metallurgy // Metals of Eurasia. 2019. No. 4. pp. 17-18.

8. Blokhin A.A., Dranev S.Y. Impact of Institutional Factors on the Technological Level in Metallurgy of Russian Federation. The world of new economy. 2021;15(2):75-88. https://doi.org/10.26794/2220-6469-2021-15-2-75-88

9. Budanov I.A., Terentyev N.E. Problems and directions of technological modernization of the metallurgical complex of Russia in the context of "green" economic growth. Scientific papers: Institute of National Economic Forecasting RAS. 2017;(15):76-91.

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