Factor analysis of financial performance and formation of strategic resilience in ukrainian it companies under the challenges of war

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Ivan Franko National University of Lviv

Factor analysis of financial performance and formation of strategic resilience in ukrainian it companies under the challenges of war

Mariya Rubakha

Candidate of Economy Sciences, Associate Professor,

Candidate of Economy Sciences, Associate Professor

Iryna Pryimak

Candidate of Economy Sciences, Associate Professor



Рубаха М, ТкачикЛ, Приймак І., Демчишак Н, Юрків Р.

ФАКТОРНИЙ АНАЛІЗ ФІНАНСОВОЇ РЕЗУЛЬТАТИВНОСТІ ТА ФОРМУВАННЯ СТРАТЕГІЧНОЇ СТІЙКОСТІ УКРАЇНСЬКИХ ІТ-КОМПАНІЙ В УМОВАХ ВИКЛИКІВ ВІЙНИ

Українські ІТ-компанп, які є важливим сектором національної економіки, сьогодні стикаються з викликами та ризиками, пов'язаними з сучасними воєнними й несприятливими макроекономічними реаліями. Адаптація та зміцнення стратегічної стійкості й фінансової результативності українських ІТ-компаній стають ключовими завданнями в умовах війни. Метою дослідження є проведення факторного аналізу фінансової результативності ІТ-компаній та визначення ключових напрямів забезпечення стратегічної стійкості підприємств цієї галузі в Україні.

У статті проаналізовано основні загрози та проблеми, із якими зіткнулися українські IT-компанії; оцінено відповідні заходи, яких вони вживали для стабілізації роботи та забезпечення бізнес-процесів у 2021-2022 роках. Дослідження з використанням методів економічного аналізу на підставі побудови багатофакторних моделей мультиплікативного типу дозволило ідентифікувати фактори впливу на фінансову результативність українських ІТ-компаній у воєнних умовах. Зокрема побудовано п'ятифакторні моделі для аналізу зміни чистого прибутку та чистого доходу від реалізації для 7 провідних компаній галузі в Україні. Ключовими факторами моделей визначено структуру джерел фінансування, оборотність активів, рентабельність, структуру витрат та інші.

Доведено важливість формування стратегічної стійкості для українських ІТ-компаній в умовах воєнних викликів. Стратегічна стійкість бізнесу передбачає здатність компаній адаптуватися до несприятливих змін у зовнішньому середовищі та зберігати конкурентоспроможність. Визначено напрями формування стратегічної стійкості підприємств, зокрема в контексті забезпечення фінансової, операційної, організаційної стійкості, забезпечення фізичної безпеки бізнесу, стабільності бізнес-моделі, протистояння кіберзагрозам та соціальної відповідальності компаній. Аналіз факторів фінансової результативності з використанням методів економічного аналізу разом з оцінкою особливостей реагування компаній ІТ-сектора на виклики війни дасть змогу комплексно оцінити ризики та ухвалювати дієві управлінські рішення менеджменту бізнес-структур.

Ключові слова: факторний аналіз, ІТ-галузь, стратегічна стійкість ІТ-компанії, чистий прибуток, чистий дохід від реалізації, бізнес-моделі, структура витрат, фінансова результативність

factor analysis profit



ABSTRACT

Ukrainian IT companies, a crucial sector of the national economy, currently face challenges and risks associated with contemporary military and adverse macroeconomic realities. Adapting and strengthening the strategic resilience and financial performance of Ukrainian IT companies becomes a pivotal task in times of war. The purpose of the article is to conduct a factor analysis of the financial performance of IT companies and determine the key directions for ensuring the strategic stability of enterprises in this industry in Ukraine.

The article analyzes the primary threats and challenges faced by Ukrainian IT companies, assessing the corresponding measures they implemented to stabilize operations and ensure business processes in 2021-2022. The research allowed for the identification, using economic analysis methods and the construction of multifactorial multiplicative models, of the influencing factors on the financial performance of Ukrainian IT companies during wartime. In particular, five-factor models were constructed to analyze the change in net profit and net income from sales for 7 leading industry companies in Ukraine. The key factors in the models include the structure of funding sources, asset turnover, profitability, cost structure and others.

The importance of fostering strategic resilience for Ukrainian IT companies amid military challenges has been established. Business strategic resilience implies a company's ability to adapt to adverse changes in its external environment while maintaining competitiveness. Directions for shaping strategic resilience in enterprises have been identified, particularly in the context of ensuring financial, operational, and organizational resilience, physical security, business model stability, cyber threat resistance, and corporate social responsibility. The analysis of financial performance factors, employing economic analysis methods in conjunction with an evaluation of how IT companies respond to the challenges of war, will enable a comprehensive risk assessment and effective managerial decision-making within these business structures.

Keywords: factor analysis, IT industry, IT company strategic resilience, net profit, net revenue from sales, business models, cost structure, financial performance



INTRODUCTION

The importance of the development of the IT industry in Ukraine cannot be overstated. The functioning of the Information Technology sector is a significant factor in maintaining the competitiveness of Ukraine's economy in the face of full-scale russian aggression. Moreover, individual IT companies play a pivotal role in shaping Ukraine's business reputation on the global stage. The IT sector is export-oriented, which means that every IT company represents Ukraine in the international market.

The role of individual IT companies in the economy includes the creation of innovative products, provision of IT services to other market players, job creation for IT professionals and specialists from other fields, as well as contributing to informal and additional education for IT experts. Furthermore, IT companies serve as clients for other sectors of the economy and are active taxpayers.

IT companies attract foreign investments, foster cooperation, and exchange knowledge with foreign experts, shaping Ukraine's image and promoting its brand in the global business environment. The IT industry operates in close connection with the global economy, as it facilitates the transformation and digitization of other sectors, providing services and creating unique products for Ukrainian and foreign businesses.

However, during a full-scale war, the IT industry faces specific challenges and threats. Serious challenges in the first year of the war included restrictions on IT specialists travelling abroad, periodic power outages, threats to the lives of employees in settlements close to the front line, occupation of certain localities, and more. Studying the state of IT companies, and analyzing the factors influencing their financial performance and resilience during wartime and post-war economic recovery, is particularly relevant today.



LITERATURE REVIEW

The issues regarding the development of digital businesses and the digitization of business processes (Kvitka A. et al., 2021; Kraus N. and Kraus K., 2021), as well as the development of the IT sector, were relevant in the pre-war period and have become more acute during the time of war.

The problems and peculiarities of Ukrainian IT companies' operations in the context of war are highly pertinent today and have been addressed in various publications. Most frequently, authors of scientific publications research the development of the IT sector as a whole (Zayats O., Yarema T., and Chornomaz M., 2023), the prospects for its further growth (Vikulova A. and Savchuk V., 2020), international aspects of IT business development (Ovsak B., Korzh M., and Ovsak O., 2023), and more. Sher G. (2022) and Woodman A. and Hodgson L. (2022) emphasize the importance of innovation, particularly digital innovation, and investments in human capital to achieve victory over russia and the post-war recovery of Ukraine's economy.

An analysis of the profitability of Ukrainian IT companies is presented in the scientific publication by Polchanov A. et al. (2023). The authors analyze the impact of financial indicators, business activity, and the structure of funding sources on the profits of companies in this industry. The study shows that by expanding their markets, companies in the industry can achieve higher profitability, as increased business activity positively affects their return on assets.

Publications by foreign authors focus on researching the influence of transparency in corporate social responsibility on the financial performance and sustainability of IT firms (Alcaide M., De la Poza, E., and Guadalajara N., 2019) and the effect of corporate governance on financial performance (Kaura P. et al., 2019).

Ovsak B., Korzh M., and Ovsak O. (2023) study the macroeconomic impact of foreign economic activities within the IT industry in Ukraine, along with emerging developmental trends. Their research reveals that the domestic IT sector is progressively adopting the characteristics of international business. This transformation is highly significant as it plays a pivotal role in addressing various issues related to leveraging the advantages of conducting IT business in Ukraine and in establishing the necessary institutional framework to support the sector's growth.

Melnyk T. and Zavhorodnya E. (2023) investigate the export orientation of the domestic IT sector and study the factors influencing the sector's competitiveness between 2014-2021. They identify political and macroeconomic instability in Ukraine as the primary threats to the IT sector.

Almeida F., Santos J.D., and Monteiro J.A. (2020) research the impact of IT industry development on other economic sectors. The scholars analyze the influence of digital transformation processes in three business areas: labour and social relations and marketing.

Shpak N. et al. (2023) identify and analyze the distinctive attributes of Ukrainian IT companies. These traits are examined in the context of applying elements of the business model to enhance the value proposition for consumers of digital services and products.

AIMS AND OBJECTIVES

The aim of this article is to conduct a factor analysis of the financial performance of leading companies in the IT sector and to develop strategies for ensuring the strategic financial stability of business structures within the industry in the context of wartime economic challenges in Ukraine.

METHODS

The research article employed various methods of scientific inquiry, including scientific abstraction, generalization, induction, deduction, and synthesis, to analyze and synthesize the state, challenges, and development strategies of Ukrainian IT companies. Furthermore, graphical and tabular methods, as well as techniques for grouping and comparison, were utilized to illustrate and scrutinize the trends in the development of the IT industry in wartime conditions.

Factorial analysis of net profit and net income from product sales for IT sector companies was conducted using the method of chain substitutions. This method is an instrument of economic analysis and mathematical statistics, employed for statistical transformations and assessments within multifactor models of a multiplicative nature. The core of the method involves the sequential replacement of the base value of a factor (from a specific previous period) with its analyzed value (e.g., in the current period), under the condition of other factors remaining unchanged. The calculated results are then compared with previous ones, allowing for the determination of the impact of the analyzed factor within a multifactor model (Mishchuk H.Yu., Dzhyhar T.M. and Shyshkina O.O., 2017; Volkova R.M. et al., 2015).

The analyzed parameter (P) in a multifactor model of a multiplicative type is a function of defined variables f(Ri...n):

Using this method, in the article, we will analyze the net profit and net income from the sale of products for the leading 7 companies in the IT sector in 2021-2022.

RESULTS

We will analyze the state and main problems faced by the IT industry during the full-scale invasion.

The geographical structure of the IT industry in Ukraine is characterized by several concentration centres. In 2022, two- thirds of the total net revenue declared by Ukrainian IT companies was concentrated in the capital city, with 123.7 out of 184.4 billion UAH. Specifically, in Kyiv, 3013 companies in the field of information technology were officially registered and operated throughout 2022. Apart from the capital, several other business concentration centres in the field of information technology can be highlighted, including those in Lviv (10.4% of income), Kharkiv (8.1%), Dnipropetrovsk (4.2%), Vinny- tsia (3.4%), and Odesa regions (1.7%). It is logical that the regions with a significant share of temporarily occupied territories reported the smallest net income from product sales in 2022: Luhansk, Donetsk, and Kherson regions (IT Ukraine Association, 2022).

The location and concentration of business activity in the field of information technology in Ukraine are traditionally influenced by factors that form so-called centres of economic growth:

The concentration of educational and scientific centres in major cities, which provide the IT sector with a constant influx of technically educated professionals with knowledge of the English language.

The concentration of system-forming foreign and local IT companies that create demand in the labour market through continuous high-paying orders due to their high capitalization. They also become the socially responsible core of local IT clusters.

Formation of an IT ecosystem through clusters of participants and stakeholders united around common interests and cost-saving on a larger scale. This includes co-funding infrastructure projects and educational programs, and even collective protection from hostile takeovers or potential regulatory pressures.

Proactive urban policies prioritise the development of the information technology sector as a strategic direction for community development and a high level of urban comfort that significantly enhances the resilience and scalability of the local IT ecosystem.

During the full-scale war, the IT industry faced several problems. Figure 1 presents statistics on the percentage of companies that encountered various war-related challenges (IT Ukraine Association, 2022).

Figure 1. The share of IT companies that encountered war-related challenges. (Source: calculated and created by the authors according to a

report of IT Ukraine Association, 2022)

All these problems posed a threat to the continuous operation of IT companies, and timely contract fulfillment, and, consequently, could undermine the stability and reputation of the domestic IT industry as a whole, potentially leading to severe financial difficulties for the companies in the sector.

However, according to a survey conducted by the IT Ukraine Association, 34.3% of companies were able to successfully adapt to the new realities, and more than 43% of IT companies expect business growth by the end of 2023.

To stabilize their business processes, IT companies in Ukraine actively resorted to the purchase and use of generators and Starlink systems to ensure uninterrupted operation and internet access, fuel procurement, the creation of a continuous communication system or a separate channel for generating requests, funding employee relocations to different regions or entire offices, and more. Figure 2 provides a more detailed breakdown of the statistics regarding the percentage of companies that implemented various measures to preserve and ensure the effective functioning of their businesses (IT Ukraine Association, 2022).

Purchase of generators Use of Starlink Fuel procurement Establishing an information system Payment for employee relocations to different regions Diversification of internet service providers Purchase of power banks Data migration to the cloud Setting up offices with accommodation options Payment for co-working spaces

Figure 2. The percentage of IT companies that implemented measures to stabilize their business processes. (Source: calculated and created

by the authors according to a report of IT Ukraine Association, 2022)

The IT industry in Ukraine is one of the leading sectors of the economy, experiencing rapid growth year by year. Over the last decade, the share of computer services exports in the GDP has increased from 1.8% to 5.27%, and in the export of services, it has risen from 9.08% to 80.19% (see Figure 3).



Figure 3 The share of IT products in GDP and in the export of services. (Source: calculated and created by the authors based on data from the

State Statistics Service of Ukraine, 2023)

Before the full-scale war, Ukraine attempted to support the development of the IT sector and digitalization of the economy at the legislative level (Law of Ukraine (2021)). Despite the war, the IT industry contributed USD 7.35 billion in export revenue to Ukraine's economy in 2022, achieving an 8% growth compared to the previous year (Figure 4). These results were made possible through effective business continuity plans, timely team relocation, and the diversification of development centres both within Ukraine and abroad (IT Ukraine Association, 2022).

Figure 4. The dynamics of IT exports from Ukraine. (Source: calculated and created by the authors based on data from the State Statistics Service

of Ukraine, 2023)

Throughout the entire analyzed period, IT exports have shown a positive upward trend. Starting from 2018, there has been a rapid increase in the volume of computer services exports from Ukraine, with record levels reached in 2021 and 2022. In 2021, IT exports reached USD 6.9 billion, which was 37.29% higher than the previous year. Despite the ongoing war, IT exports continued to grow in 2022 (IT Ukraine Association, 2022).

Key indicators of the state and dynamics of the IT sector during wartime also include the financial performance of leading companies. Let's focus on two specific metrics: net revenue from sales and net profit, and construct factor analysis models for these indicators using the method of chained substitutions for a sample of Ukrainian companies.

The indicators of net profit and net revenue from sales are important and informative for both internal management and external stakeholders, including investors, and creditors, and are crucial when making strategic decisions and developing business plans. Their growth demonstrates a company's efficiency and competitiveness, its ability to implement new projects, innovate, and maintain financial stability even during times of crisis and war in Ukraine. Let's analyze the changes in net profit and net revenue from sales for IT sector companies in Ukraine during the years 2021-2022:

EPAM (Ukraine);

GlobalLogic (Ukraine);

LLC "Softserve";

Ciklum (Ukraine);

Intellias (Ukraine);

Infopulse (Ukraine);

Luxoft (Ukraine).

The choice of these specific business structures for analysis is driven by the fact that they are among the largest IT companies in Ukraine based on the number of employees, according to data from the DOU (DOU: Developer Community, 2022) platform. Furthermore, the scope of their activities, as measured by total assets, revenues, and other indicators, varies significantly. Hence, it is important to investigate the factors influencing their performance during the year of war in Ukraine. The net profit of the selected companies for analysis in the five-factor multiplicative model will be a function of the following variables:

The indicator of the profitability of the realized products by net profit (N1);

Asset turnover ratio (N2);

The multiplier effect of equity capital (N3);

Financial stability coefficient (N4);

Borrowed capital (total liabilities) (N5).

To analyze changes in net income from sales, the five-factor model includes the following factors:

The Return on Assets ratio (K1);

The coefficient of administrative expenses to gross profit (K2);

The ratio of operating and administrative expenses (K3);

The ratio of net income from sales to operating expenses (K4);

Total assets (balance sheet total) (K5).

These proposed models will be optimal in terms of the comprehensiveness and completeness of the financial analysis of companies.

Let's take a closer look at the selected factors included in the factor analysis models of net income and net revenue from sales. These indicators comprehensively characterize the possibilities of increasing financial performance and the efficiency of the financial management of companies.

The indicator of the profitability of the realized products by net profit (N1) is key to evaluating the overall efficiency of a company's operational activities and sales, indicating how much net income is generated by the sale of all products (or services). Positive dynamics of this indicator mean that the company can efficiently convert its sales revenue into profit, effectively manage financial resources, and build optimal production processes. High profitability of realized products can also indicate competitiveness and the quality of a product or service in the market. Overall, the growth of this indicator positively affects performance and the ability to withstand challenges and threats under adverse external market conditions and new business risks, especially in times of war, and essentially determines the portion of net income in the sales revenue of the company.

The asset turnover ratio (N2) is crucial for evaluating the efficiency of a company's asset utilization and, consequently, the potential for future profit growth. A high value and an increasing trend of this indicator indicate that the company can generate higher turnover in relation to the sum of invested assets and use them more productively. This may result from process optimization, improved sales strategies, better inventory management, and so on.

The multiplicative effect of equity capital (N3) indicates the degree of financial risk and the efficiency of using the company's equity capital for expansion. This indicator assesses how well a company has been able to increase its assets and property in relation to its invested equity capital. Excessive growth in this coefficient may signify an increase in assets through an increase in liabilities, so business structures need to maintain a balance between expanding the company's development potential and managing risks. In the IT business sector, which often secures financing from abroad at lower interest rates than those in Ukraine, a positive trend in this indicator suggests the utilization of opportunities for financial growth, expansion, and strategic development.

The ratio of equity capital to total liabilities (Financial stability coefficient, (N4) reflects the financial stability of the business structure. High values of this coefficient and its positive trend indicate that the company has minimal liabilities compared to its equity capital, and the level of the company's dependence on external financing is low, reducing its financial risk and dependence on changes in interest rates of major creditors.

The amount of borrowed capital (total liabilities) (N5) was included in the factor analysis model of net profit in the context of the need for external financing by companies during wartime to increase profit when there are limited or significantly restricted opportunities to accumulate or attract equity capital. Loan capital in these conditions can help the company maintain its market position or expand its operations, increase sales volumes, and consequently lead to an increase in net profit. It is important to consider that effective management of loan capital and ensuring adequate solvency are key factors in ensuring the positive impact of increased loan capital on the company's financial results.

Let's consider the selected influencing factors on the net profit from sales volume.

The return on assets ratio (K1) (Gross Profit / Total Assets) is essential for assessing the effectiveness of a company's use of total assets. It indicates how much profit the company generates per unit of assets it has at its disposal. This indicator is crucial for investors, creditors, and company management. An increase in the return on assets signifies efficient management, high business productivity, successful investment of assets in profitable projects, and an improved financial position of the company.

The coefficient of administrative expenses to gross profit (K2) is one of the key financial analysis indicators reflecting cost management efficiency for companies operating in the IT sector. Under normal circumstances, reducing the coefficient of administrative expenses to gross profit is considered favourable for businesses, indicating cost optimization and improved management efficiency. However, in the analyzed business sector, during the full-scale invasion of russia into Ukraine, the increase in administrative expenses became one of the conditions for ensuring stability in development, supporting administrative staff, and ensuring proper management of the company in the turbulent external environment. Therefore, the growth of this indicator is justified under the prevailing conditions and contributes to ensuring strategic perspectives and achieving long-term goals of business structures.

The ratio of operating and administrative expenses (K3) in the model is important for considering the efficiency of cost management within the company. This indicator reflects the proportion of all company expenses that are made up of operating and administrative expenses. The ratio of expenses can have various impacts on the overall financial result of the company. In general, the ratio of operating and administrative expenses depends on various factors such as the industry, the company's size, management strategy, and specific market conditions. There is no "ideal" ratio of operating and administrative expenses; however, the general principle is that operating expenses related to production and service delivery should typically be higher than the expenses associated with managing the company and carrying out general administrative functions. In many companies in the analyzed IT sector, administrative expenses are often relatively high. To achieve successful improvement in the efficiency of business structures, it is important to balance expenses to maximize profitability and efficiency.

The ratio of net income from sales to operating expenses (K4) allows for an assessment of the efficiency of a company's operational activities. This indicator reflects how much income from sales the company generates per unit of operating expenses. A positive trend in this indicator indicates that the company is increasing its net income from sales compared to operating expenses. This can be the result of operational optimization, cost reduction, or increased sales volume. All of these factors contribute to the potential improvement of the company's financial health and increased financial potential.

The five-factor model for net income from sales also includes the total assets (balance sheet total) (K5). Total assets indicate the overall scope of a business's activities. An increase in total assets signifies business expansion, investments in new opportunities, or the accumulation of assets for future use. While considering the sources of asset financing and capital structure (equity capital/liabilities) is essential, prudent financial management that leads to an increase in total assets can positively impact the potential, financial and investment capabilities, and production opportunities of business structures.



Let's present the key financial data for the calculation of the required indicators for the IT company EPAM (Ukraine) for 2021-2022 (absolute values in thousands of hryvnias) (Table 1).

Table 1. Financial statement data of EPAM (Ukraine). (Source: calculated by the authors based on the financial statements (EPAM (Ukraine), 2023)
EPAM (Ukraine)	31.12.2021	31.12.2022
Net profit (loss)	1,198,502	3,443,159
Gross profit (loss)	1,977,849	3,361,149
Net sales revenue	14,701,899	20,212,715
Administrative expenses	3,32,706	378,966
Operating expenses	17,340,210	13,200,002
Equity capital	5,701,959	9,145,106
Borrowed capital (total liabilities)	1,607,023	1,410,304
Total assets (balance sheet total)	7,308,982	10,555,410

Let's construct a factor analysis model for the net profit of EPAM (Ukraine) based on the data from Table 2.

Table 2. Factor analysis of the net profit of EPAM (Ukraine). (Source: calculated by the authors based on the financial statements (EPAM (Ukraine), 2023) using the method of chain substitutions (Mishchuk et al, 2015)

	EPAM (Ukraine)	31.12.2021	31.12.2022
(N1)	The indicator of the profitability of the realized products by net profit (Net profit / Net sales revenue)	0.081520217	0.170346191
(N2)	Asset turnover ratio (Net sales revenue / Total assets (balance sheet total)	2.011483815	1.914915195
(N3)	The multiplicative effect of equity capital (Total assets (balance sheet total) / Total assets (balance sheet total))	1.281836997	1.154214068
(N4)	Financial stability coefficient (Equity capital / Borrowed capital (total liabilities))	3.548150213	6.484492705
(N5)	Borrowed capital (total liabilities)	1,607,023	1,410,304
N1	Net profit	1,198,502	3,443,159
ANI(N1 ) = 0.170346191 X 2.01148381 X 1.281836997 X 3.548150213 X 1,607,023 - 1,198,502 = 1305910.488
ANI(N ) = 0.170346191 X 1.914915195 X 1.281836997 X 3.548150213 X 1,607,023 - 0.170346191 X 2.011483815 X 1.281836997 X 3.548150213 X 1,607,023 = -120233.4598
ANI(N3 ) = 0.170346191 X 1.914915195 X 1.154214068 X 3.548150213 X 1,607,023 - 0.170346191 X 1.914915195 X 1.281836997 X 3.548150213 X 1,607,023 = -237374.8851
ANI(N ) = 0.170346191 X 1.914915195 X 1.154214068 X 6.484492705 X 1,607,023 - 0.170346191 X 1.914915195 X 1.154214068 X 3.548150213 X 1,607,023 = 1776630.596
ANI(NS ) = 3443159 - 0,170346191 X 1.914915195 X 1.154214068 X 6.484492705 X 1,607,023 = -480275.7386
ДМ = 3443159 - 1198502 = 1305910,488 - 120233.4598 - 237374.8851 + 1776630.596 - 480275.7386 = 2244657

During the analyzed period, the net profit of the company significantly increased. Based on the constructed five-factor model, we can conclude that the most significant positive impact on the studied indicator was the increase in the indicator of the profitability of the realized products by net profit (+1305910.488 thousand hryvnias) and the financial stability coefficient (+1776630.596 thousand hryvnias). Maintaining a positive trend in these coefficients will allow for an increase in net profit, with a particular emphasis on the coefficient of financial stability. In contrast, the reduction in the asset turnover ratios and the multiplicative effect of equity capital, as well as the decrease in the volume of total liabilities, reduced the amount of net profit for the business structure.

The model of factor analysis of net sales revenue for EPAM (Ukraine) will have the following form (Table 3).

Throughout 2022, the net income from sales of EPAM (Ukraine) increased by 5,510,816 thousand UAH. The positive dynamics of the return on assets ratio, the ratio of net sales revenue to operating expenses, and total assets facilitated this growth, with the latter two indicators contributing more significantly to the increase in the analyzed metric. The increase in the net sales revenue to operating expenses ratio resulted in an increase in net income from sales by 6,246,559.605 thousand hryvnias, an increase in total assets by 6,216,634.307 thousand hryvnias, and an increase in return on assets ratio by 2598250.385. Negatively affecting the dynamics were the ratio of administrative expenses to gross profit and the ratio of operating to administrative expenses.

Let's construct factor analysis models for the net profit and net sales revenue of GlobalLogic (Ukraine) in 2021-2022. The necessary financial statement data for calculations are provided in Table 4 (absolute figures in thousands of hryvnias).

Table 3. Factor analysis of the net sales revenue of EPAM (Ukraine). (Source: calculated by the authors based on the financial statements (EPAM (Ukraine), 2023) using the method of chain substitutions (Mishchuk et al, 2015)

	EPAM (Ukraine)	31.12.2021	31.12.2022
(K1)	Return on Assets ratio (Gross Profit / Total Assets)	0.270605263	0.318429033
(K 2)	The coefficient of administrative expenses to gross profit	0.168216077	0.112748944
(K 3)	The ratio of operating and administrative expenses	52.11871743	34.83162606
(K 4)	The ratio of net sales revenue to operating expenses	0.847850113	1.531266056
(K 5)	Total assets (balance sheet total)	7,308,982	10,555,410
NIS	Net sales revenue	14,701,899	20,212,715
ANIS(K1 ) = 0.318429033 X 0.168216077 X 52.11871743 X 0.847850113 X 7308982 - 14701899 = 2598250.385
ANIS(K ) = 0.318429033 X 0.112748944 X 52.11871743 X 0.847850113 X 7308982 - 0.318429033 X 0.168216077 X 52.11871743 X 0.847850113 X 7308982 = -5704506.417
ANIS(K3 ) = 0.318429033 X 0.112748944 X 34.83162606 X 0.847850113 X 7308982 - 0.318429033 X 0.112748944 X 52.11871743 X 0.847850113 X 7308982 = -3846121.881
ANIS(K4 ) = 0.318429033 X 0.112748944 X 34.83162606 X 1.531266056 X 7308982 - 0.318429033 X 0.112748944 X 34.83162606 X 0.847850113 X 7308982 = 6246559.605
ANIS(Ks ) = 20212715 - 0.318429033 X 0.112748944 X 34.83162606 X 1.531266056 X 7308982 = 6216634.307
ANIS = 20212715 - 14701899 = 2598250.385 - 5704506.417 - 3846121.881 + 6246559.605 + 6216634.307 = 5510816

Let's build a factor analysis model for the net profit of GlobalLogic (Ukraine). The five-factor model for net profit will take the following form (Table 5).

Table 4. Financial statement data of GlobalLogic (Ukraine). (Source: calculated by the authors based on the financial statements (GlobalLogic Ukraine), 2023)
GlobalLogic (Ukraine)	31.12.2021	31.12.2022
Net profit (loss)	470,979	1,138,589
Gross profit (loss)	9,82,561	1,390,254
Net sales revenue	7,708,009	11,515,158
Administrative expenses	329,863	425,034
Operating expenses	7,089,169	10,574,911
Equity capital	1,993,115	3,131,704
Borrowed capital (total liabilities)	337,195	404,026
Total assets (balance sheet total)	2,330,310	3,535,730

Table 5. Factor analysis of the net profit of GlobalLogic (Ukraine). (Source: calculated by the authors based on the financial statements (Global- Logic Ukraine), 2023) using the method of chain substitutions (Mishchuk et al, 2015)

	GlobalLogic (Ukraine)	31.12.2021	31.12.2022
(N1)	The indicator of the profitability of the realized products by net profit (Net profit / Net sales revenue)	0.061102549	0.09887741
(N2)	Asset turnover ratio (Net sales revenue / Total assets (balance sheet total)	3.307718286	3.256797889
(N3)	The multiplicative effect of equity capital (Total assets (balance sheet total) / Total assets (balance sheet total))	1.169179902	1.129011554
(N4)	Financial stability coefficient (Equity capital / Borrowed capital (total liabilities))	5.910867599	7.751243732
(N5)	Borrowed capital (total liabilities)	337,195	404,026
N1	Net profit	470,979	1,138,589
ANI(N1 ) = 0.09887741 X 3.307718286 X 1.169179902 X 5.910867599 X 337195 -470979 = 291168.967
ANI(N ) = 0.09887741 X 3.256797889 X 1.169179902 X 5.910867599 X 337195 - 0.09887741 X 3.307718286 X 1.169179902 X 5.910867599 X 337195 = -11732.82427
ANI(N3 ) = 0.09887741 X 3.256797889 X 1.129011554 X 5.910867599 X 337195 - 0.09887741 X 3.256797889 X 1.169179902 X 5.910867599 X 337195 = -25781.26458
ANI(N ) = 0.09887741 X 3.256797889 X 1.129011554 X 7.751243732 X 337195 - 0.09887741 X 3.256797889 X 1.129011554 X 5.910867599 X 337195 = 225618.13
ANI(N5 ) = 1138589 - 0.09887741 X 3.256797889 X 1.129011554 X 7.751243732 X 337195 = 188336.9918
ANI = 1138589 - 470979 = 291168.967 - 11732.82427 - 25781.26458 + 225618.13 + 188336.9918 = 667610

In 2022, despite the war, GlobalLogic (Ukraine) managed to significantly increase its net profit by more than twice, amounting to 667,610 thousand hryvnias. The increase in net profit was achieved through the growth in borrowed capital (+188,336.9918 thousand hryvnias to the net profit), which evidently influenced the expansion of the company's operations. Additionally, increases the financial stability coefficient and the indicator of the profitability of the realized products by net profit. The growth in these indicators will enable the company to maintain a positive trend in net profit in the future. The factor analysis model for the net sales revenue of GlobalLogic (Ukraine) is presented in Table 6.

Table 6. Factor analysis of the net sales revenue of GlobalLogic (Ukraine). (Source: calculated by the authors based on the financial statements (GlobalLogic Ukraine), 2023) using the method of chain substitutions (Mishchuk et al, 2015)

	GlobalLogic (Ukraine)	31.12.2021	31.12.2022
(K1)	Return on Assets ratio (Gross Profit / Total Assets)	0.421643901	0.393201404
(K 2)	The coefficient of administrative expenses to gross profit	0.335717579	0.30572399
(K 3)	The ratio of operating and administrative expenses	21.49125243	24.88015312
(K 4)	The ratio of net sales revenue to operating expenses	1.087293729	1.088912994
(K 5)	Total assets (balance sheet total)	2,330,310	3,535,730
NIS	Net sales revenue	7,708,009	11,515,158
ANIS(K1 ) = 0.393201404 X 0.335717579 X 21.49125243 X 1.087293729 X 2330310 - 7708009 = -519953.0361
ANIS(K ) = 0.393201404 X 0.30572399 X 21.49125243 X 1.087293729 X 2330310 - 0.393201404 X 0.335717579 X 21.49125243 X 1.087293729 X 2330310 = -642193.3459
ANIS(K3 ) = 0.393201404 X 0.30572399 X 24.88015312 X 1.087293729 X 2330310 - 0,393201404 X 0.30572399 X 21.49125243 X 1.087293729 X 2330310 = 1032200.352
ANIS(K4 ) = 0.393201404 X 0.30572399 X 24.88015312 X 1.088912994 X 2330310 - 0.393201404 X 0.30572399 X 24.88015312 X 1.087293729 X 2330310 = 11285.71827
ANIS(K5 ) = 11515158 - 0.393201404 X 0.30572399 X 24.88015312 X 1.088912994 X 2330310 = 3925809.311
ANIS = 11515158 - 7708009 = -519953.0361 - 642193.3459 + 1032200.352 + 11285.71827 + 3925809.311 = 3807149

The net income from sales of GlobalLogic (Ukraine) for 2021-2022 increased by almost 1.5 times, amounting to 3,807,149 thousand hryvnias. The most significant factor contributing to this growth was the increase in the efficiency of the company's cost management. The ratios of operational and administrative expenses, and the ratio of net sales revenue to operational expenses, all experienced growth during the analyzed period. There was also a substantial increase in the company's assets. However, the profitability of assets and the ratio of administrative expenses to gross profit had a negative impact on the formation of net sales revenue.

Let's construct models for factor analysis of net profit and net sales revenue for LLC "Softserve". It should be noted that there is a group of companies within the "Softserve" corporation engaged in consulting and other services. We will analyze LLC "Softserve" with The Unified State Register of Enterprises and Organizations of Ukraine code 20787166, whose profile is precisely digital services, programming, and digitalization activities. The necessary financial data for calculating the indicators for the years 2021-2022 for the IT company LLC "Softserve" are provided in Table 7 (absolute values in thousands of hryvnias).

Table 7. Financial statement data of LLC "Softserve". (Source: calculated by the authors based on the financial statements (LLC "Softserve " 2023)
LLC "Softserve"	31.12.2021	31.12.2022
Net profit (loss)	78,950	79,519
Gross profit (loss)	117,588	68,552
Net sales revenue	500,960	552,661
Administrative expenses	8,995	4,664
Operating expenses	410,307	508,130
Equity capital	157,993	237,512
Borrowed capital (total liabilities)	58,707	90,394
Total assets (balance sheet total)	216,700	327,906

The factor analysis model of the net profit for LLC "Softserve" is provided in Table 8.



Table 8. Factor analysis of the net profit of "Softserve". (Source: calculated by the authors based on the financial statements (LLC "Softserve", 2023) using the method of chain substitutions (Mishchuk et al, 2015)

	LLC "Softserve"	31.12.2021	31.12.2022
(N1)	The indicator of the profitability of the realized products by net profit (Net profit / Net sales revenue)	0.157597413	0.143883864
(N2)	Asset turnover ratio (Net sales revenue / Total assets (balance sheet total)	2.31176742	1.685425091
(N3)	The multiplicative effect of equity capital (Total assets (balance sheet total) / Total assets (balance sheet total))	1.371579754	1.380587086
(N4)	Financial stability coefficient (Equity capital / Borrowed capital (total liabilities))	2.691212292	2.627519526
(N5)	Borrowed capital (total liabilities)	58,707	90,394
N1	Net profit	78,950	79,519
ANI(N1 ) = 0.143883864 X 2.31176742 X 1.371579754 X 2.691212292 X 58707 - 78950 = -6869.939637
ANI(N ) = 0.143883864 X 1.685425091 X 1.371579754 X 2.691212292 X 58707 - 0.143883864 X 2.31176742 X 1.371579754 X 2.691212292 X 58707 = -19529.12412
ANI(N3 ) = 0.143883864 X 1.685425091 X 1.380587086 X 2.691212292 X 58707 - 0.143883864 X 1.685425091 X 1.371579754 X 2.691212292 X 58707 = 345.1084486
ANI(N4 ) = 0.143883864 X 1.685425091 X 1.380587086 X 2.627519526 X 58707 - 0.143883864 X 1.685425091 X 1.380587086 X 2.691212292 X 58707 = -1251.887636
ANI(NS ) = 79519 - 0.143883864 X 1.685425091 X 1.80587086 X 2.627519526 X 58707 = 27874.84294
ДМ = 79519 - 78950 = -6869.939637 - 19529.12412 + 345.1084486 - 1251.887636 + 27874.84294 = 569

The net profit of LLC "Softserve" in 2022 increased slightly compared to other analyzed companies in the IT sector, by 569 thousand UAH. The growth in net profit was driven by two factors: the multiplicative effect of equity capital (+345.1084486 thousand UAH to the company's net profit) and borrowed capital (+27874.84294 thousand UAH to the company's net profit).

The other factors of the model had a negative impact on the dynamics of net profit, particularly net profit decreased in the context of reduced asset turnover, the profitability of the realized products, and the financial stability coefficient. The factor analysis model of net income from sales for LLC "Softserve" is presented in Table 9.

Table 9. Factor analysis of net sales revenue of LLC "Softserve". (Source: calculated by the authors based on the financial statements (LLC "Softserve", 2023) using the method of chain substitutions (Mishchuk et al, 2015)

	LLC "Softserve"	31.12.2021	31.12.2022
(K1)	Return on Assets ratio (Gross Profit / Total Assets)	0.542630365	0.209059914
(K 2)	The coefficient of administrative expenses to gross profit	0.076495901	0.068035944
(K 3)	The ratio of operating and administrative expenses	45.61500834	108.9472556
(K 4)	The ratio of net sales revenue to operating expenses	1.220939443	1.087637022
(K 5)	Total assets (balance sheet total)	21,6700	327,906
NIS	Net sales revenue	500,960	552,661
ANIS(K1 ) = 0.209059914 X 0.76495901 X 45.61500834 X 1.220939443 X 216700 - 500960 = -307954.4826
ANIS(K2 ) = 0.209059914 X 0.068035944 X 45.61500834 X 1.220939443 X 216700 - 0.209059914 X 0.068035944 X 45.61500834 X 1.220939443 X
216700 = -21345.17588
ANIS(K3 ) = 0.209059914 X 0.068035944 X 108.9472556 X 1.220939443 X 216700 - 0.209059914 X 0.068035944 X 45.61500834 X 1.220939443 X
216700 = 238334.6093
ANIS(K4 ) = 0.209059914 X 0.068035944 X 108.9472556 X 1.087637022 X 216700 - 0.209059914 X 0.068035944 X 108.9472556 X 1.220939443 X
216700 = -44763.33352
ANIS(Ks ) = 552661 - 0.209059914 X 0.068035944 X 108.9472556 X 1.087637022 X 216700 = 187429.3827
ANIS = 552661 - 500960 = -307954.4826 - 21345.17588 + 238334.6093 -	44763.33352 + 187429.3827 = 51701

During the analyzed period, LLC "Softserve" increased its net revenue from sales by 51,701,000 hryvnias, which is significantly lower than other companies in the industry. The positive impact on the growth of this indicator was due to the improvement in cost structure (increasing the ratio of operational to administrative expenses) and the expansion of the company's operations (growth in total assets). However, the decrease in asset profitability, the ratio of net revenue from sales to operational expenses, and the ratio of administrative expenses to gross profit negatively affected LLC "Softserve's" net revenue from sales. To maintain a positive trend in net revenue from sales, it is essential to focus on the key indicator that reduces this analyzed figure - asset profitability and continue to expand business operations (total assets).

We will also analyze the company Ciklum (Ukraine) and build factor analysis models for its net profit and net income from sales. Table 10 provides the necessary financial statement data for the years 2021-2022 (in thousands of hryvnias).

Table 10. Financial statement data of Ciklum (Ukraine). (Source: calculated by the authors based on the financial statements (Ciidum (Ukraine), 2023)
Ciklum (Ukraine)	31.12.2021	31.12.2022
Net profit (loss)	65.164	96.320
Gross profit (loss)	236.066	276.076
Net sales revenue	4.063.443	4.819.083
Administrative expenses	148.996	150.359
Operating expenses	157.147	158.928
Equity capital	75.244	171.564
Borrowed capital (total liabilities)	163.942	322.807
Total assets (balance sheet total)	239.186	494.371

The calculations of coefficients and the factor analysis model for the net profit of Ciklum (Ukraine) are presented in Table 11.

Table 11. Factor analysis of the net profit of Ciklum (Ukraine). (Source: calculated by the authors based on the financial statements (Ciklum (Ukraine), 2023) using the method of chain substitutions (Mishchuk et al, 2015)

...

	Ciklum (Ukraine)	31.12.2021	31.12.2022
(N1)	The indicator of the profitability of the realized products by net profit (Net profit / Net sales revenue)	0.016036647	0.019987205
(N2)	Asset turnover ratio (Net sales revenue / Total assets (balance sheet total)	16.98863228	9.747907948
(N3)	The multiplicative effect of equity capital (Total assets (balance sheet total) / Total assets (balance sheet total))	3.178804955	2.881554405
(N4)	Financial stability coefficient (Equity capital / Borrowed capital (total liabilities))	0.458967196	0.531475464
(N5)	Borrowed capital (total liabilities)	163,942	322,807
N1	Net profit	65,164	96,320
ANI(N1 ) = 0.019987205 X 16.98863228 X 3.178804955 X 0.458967196 X 163942 - 163942 = 16052.86839
ANI(N ) = 0.019987205 X 9.47907948 X 3.178804955 X 0.458967196 X 163942 - 0.019987205 X 16.98863228 X 3.178804955 X 0.458967196 X 163942 = -34615.43845

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