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

389,484

605,087

Borrowed capital (total liabilities)

240,681

813,007

Total assets (balance sheet total)

630,165

1,418, 094

The factor analysis model of net profit for Intellias (Ukraine) is presented in Table 14.

Table 14. Factor analysis of the net profit of Intellias (Ukraine). (Source: calculated by the authors based on the financial statements (Intellias (Ukraine), 2023) using the method of chain substitutions (Mishchuk et al, 2015)

Intellias (Ukraine) significantly increased its net profit by almost twice, with a growth of 104,798 thousand hryvnias in 2022. This increase was facilitated by the growth of the multiplicative effect of equity capital, the profitability of the realized products by net profit, and the increase in the volume of borrowed capital. However, asset turnover and the financial stability coefficient decreased. The factor analysis model of net income from sales and the necessary calculations for Intellias (Ukraine) are provided in Table 15.

Table 15. Factor analysis of the net sales revenue of Intellias (Ukraine). (Source: oalculated by the authors based on the financial statements (Intellias (Ukraine), 2023) using the method of chain substitutions (Mishchuk et al, 2015)

In 2021-2022, Intellias (Ukraine) increased its net sales revenue by 79% (+1,791,364 thousand hryvnias). This was facilitated by the improvement in cost management (the ratio of operating to administrative expenses) and the overall increase in the company's assets. However, the sales revenue to operating expenses ratio, asset profitability, and the ratio of administrative expenses to gross profit negatively affected the net sales revenue for Intellias (Ukraine).

We will also analyze the company Infopulse (Ukraine). The main financial data for Infopulse (Ukraine) (LLC "Infopulse") (2023) and the calculations of the necessary indicators for 2021-2022 (absolute figures in thousands of hryvnias) are presented in Table 16.

We will construct a factor analysis model of the net profit for Infopulse (Ukraine) (Table 17).

Table 17. Factor analysis of the net profit of Infopulse (Ukraine). (Source: calculated by the authors based on the financial statements Infopulse (Ukraine), 2023) using the method of chain substitutions (Mishchuk et al, 2015)

The net profit of the company increased by one and a half times in 2022 (by 170,114 thousand UAH). This increase was attributed to the growth in the profitability of realized products by net profit, the financial stability coefficient, and the asset turnover. Other indicators in the model had a negative impact on the net profit of Infopulse (Ukraine).

The model of factor analysis of net income from sales for Infopulse (Ukraine) is presented in Table 18.

Table 18. Factor analysis of the net sales revenue of Infopulse (Ukraine). (Source: calculated by the authors based on the financial statements Infopulse (Ukraine), 2023) using the method of chain substitutions (Mishchuk et al, 2015)

According to the five-factor model, we can see that the most significant positive impact on Infopulse (Ukraine)'s net sales revenue came from the increase in asset profitability, and the administrative expenses to gross profit ratio. The reduction in the ratio of operating expenses to administrative expenses, the reduction in the total asset volume and the ratio of net sales revenue to operating expenses had a negative effect on the net sales revenue.

We will analyze Luxoft (Ukraine) last. Financial data and necessary calculations (absolute values in thousands of hryvnias) are provided in Table 19.

The five-factor model for analyzing the net profit of Luxoft (Ukraine) is presented in Table 20.

Table 20. Factor analysis of the net profit of Luxoft (Ukraine). (Source: calculated by the authors based on the financial statements (Luxoft (Ukraine), 2023) using the method of chain substitutions (Mishchuk et al, 2015)

As evident from the results of the factor analysis, Luxoft (Ukraine) significantly increased its net profit by 2.5 times in 2022 (+23,092 thousand hryvnias). The multiplicative effect of equity capital, asset turnover, profitability of realized products by net profit, and the total liabilities all increased, allowing for an expansion of business activities. However, the only decrease occurred in the coefficient of financial stability.

The factor analysis model for net income from sales of Luxoft (Ukraine) is presented in Table 21.

Table 21. Factor analysis of the net sales revenue of Luxoft (Ukraine). (Source: calculated by the authors based on the financial statements (Luxoft (Ukraine), 2023) using the method of chain substitutions (Mishchuk et al, 2015)

The net income from sales of Luxoft (Ukraine) increased by 114,432 thousand hryvnias (48%) in 2021-2022. The most significant factors contributing to this growth were the increase in the ratio of administrative expenses to gross profit, the ratio of net sales revenue to operating expenses, and the growth in the company's assets. On the other hand, factors such as the profitability of assets and the ratio of net sales revenue to operating expenses had a negative impact on the formation of net sales revenue.

As we can see, despite the challenges of the war and even taking into account inflation (consumer inflation in 2022 was 26.6% according to the National Bank of Ukraine (2023)), the analyzed companies increased their revenue from sales and net income. To maintain such financial performance and efficiency in the long term, leading IT companies need to consider the results of factor analysis and work to improve the indicators included in the models.

It's worth noting that the trials brought by COVID-19 and the full-scale attack by russia on Ukraine forced Ukrainian IT companies to make changes in management and develop new development strategies, which became a key to success even during times of war. The COVID-19 crisis and the experience of operating in the years 2019-2021 to some extent prepared the Ukrainian IT sector to function in times of war.

While the VIX (Volatility Index) and the Economic Policy Uncertainty Index (EPU) - which are markers of economic stability in the global market for Ukrainian companies - increased, they didn't spike as significantly as during the initial stages of the pandemic (McKinsey & Company, 2022). However, the IT industry had to adapt its operational and strategic activities to the new realities of war and the economy.

In our view, to ensure future business efficiency and resilience, it will be necessary to pay attention to the development of long-term company growth strategies. When developing these strategies, it's advisable to consider aspects that enhance the resilience and institutional stability of businesses, as suggested by McKinsey & Company: financial stability (ensuring liquidity, profitability, proper tax and risk management), operational stability (reliable service and supply, ensuring product quality even in adverse external conditions), organizational stability (talent development, staff retraining as needed, strategic planning), reputation stability (alignment and clarity of the company's mission, values, and goals; quality stakeholder communication, brand development), business model stability (innovation, building an ecosystem and forming alliances in business), and digital and technological stability (the ability to adapt to technological changes) (McKinsey & Company (2022)).

In the context of the Ukrainian situation, it's important to focus on additional risks associated with the war and directions for ensuring financial performance and strategic institutional stability. These include the need to ensure the physical safety of personnel and the company's physical assets and to enhance cybersecurity in response to the growing threat of cyberattacks. A key aspect is strengthening the social responsibility of businesses and developing the adaptability of managers at all levels. They should be oriented towards achieving goals even in crisis conditions, maintaining good team relationships, and adapting to a dynamic and uncertain external environment.

DISCUSSION

To enhance the efficiency of IT company representatives' activities, it is important to utilize the results of factor analysis. The results of calculations based on the proposed factor analysis models confirm their scientific validity and practical value, allowing for an exploration of the factors contributing to the financial performance improvement of leading IT companies in Ukraine. In this study, we took into account expenditure structure, profitability, financial stability indicators, and other factors. Additionally, we examined the challenges and risks associated with the war.

The profitability of IT sector companies has been investigated by A. Polchanov (2023); however, their analysis primarily focused on the structure of financial capital, liquidity, and funding sources, within the period of the study up to 2020. Consequently, the risks associated with a full-scale invasion of russia into Ukraine were practically not considered. Hori- ashchenko Yu. (2023) examined the innovation activity of Ukrainian enterprises based on profitability indicators, but the analysis also covered the period preceding the full-scale war. Pavelyo O. V. (2020) conducted a factor analysis of the financial performance of construction companies using data from one of the industry's enterprises within the years 20152018.

The effectiveness of Ukrainian businesses and their preparedness to operate in wartime conditions, drawing from the experience of the COVID-19 pandemic, is analyzed by Obtoj K. and Voronovska R. (2023). In our study, we also assert that the previous COVID-19 crisis somewhat prepared the IT industry for sustaining stability and financial performance during times of war.

Nerlinger M. and Utz S. (2022) investigate the impact of the war in Ukraine on the market value of energy companies. Issues related to conducting business in Ukraine during wartime and adapting enterprises to operate in wartime conditions have been explored by Kazak, O., & Sulyma, M. (2023). Kvasnii L. et al. (2023) examined the directions and scenarios for the development of the tourism industry enterprises in Ukraine during both wartime and post-war periods. In our research, we focused on net profit and net sales revenue as indicators of the financial performance of companies representing Ukrainian IT companies, with an emphasis on preserving institutional stability in the economy during times of war.

It's worth noting that, according to research conducted by consulting companies Gartner and Accenture, as well as the experience of operational management in IT companies worldwide, most companies today employ an Employer-centric HR approach. This approach prioritizes employees within the company's operational activities and involves establishing new productivity norms for the workforce. We have described the main challenges faced by Ukrainian companies, including their employees, in wartime conditions. However, our primary focus was on the financial performance indicators of these enterprises.

The proposed factor analysis models for net profit and net revenue from sales presented in this research can also be utilized by other IT companies and enterprises in different sectors of Ukraine's economy.

CONCLUSIONS

War presents significant challenges to Ukrainian IT companies, highlighting the importance of strategic adaptation to ensure their continued operations and financial performance in a rapidly changing external environment. The results of factor analysis of financial performance, based on the construction of multiplicative models for leading Ukrainian IT companies, indicate the significant influence of selected factors on the formation of net profit and net revenue from sales. In particular, the net profit of IT companies is influenced by the profitability of realized products by net profit, asset turnover, the multiplicative effect of equity capital, the financial stability coefficient, and the amount of borrowed capital. The net revenue from sales is influenced by asset profitability, the ratio of administrative expenses to gross profit, the ratio of operating expenses to administrative expenses, the ratio of net revenue from sales to operating expenses, and the total assets amount.

The developed factor analysis models serve as a tool for a comprehensive assessment of financial performance in the IT industry. The practical value of these models lies in identifying the priority factors that determine financial results and can be used by company management to maintain the strategic stability and efficiency of IT companies in Ukraine in the future.

Considering the conducted factor analysis of performance, the assessment of the state and risks of IT companies' operations in Ukraine, the relevant directions for enhancing the effectiveness of the IT sector in the face of wartime challenges should include: ensuring the security of business and personnel, developing operational and organizational resilience, optimizing cost structures, and enhancing the competencies of managers at different levels for working in teams under uncertainty and turbulent external conditions.

The challenges and risks of war require IT companies to systematically analyze threats, maintain financial and operational stability, and exhibit a high degree of flexibility in strategic management to ensure stability and efficiency in wartime conditions.

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