Cash value added as an indicator of effi ciency of issuer ’ s development in crisis economic environment

Article is devoted to problems of valuation of development of the Ukrainian is- suers by using of a cash value added (CVA), on a base of Boston Consulting Group's approach. Urgency of problems de" nes a main goal of the presented research - the analysis of features of CVA formation, an assessment of in^ uence of certain elements on dynam- ics of this indicator, also the analysis of CVA dynamics as the generalized indicator of the enterprise's economic growth. Q e author describes structure and dynamics of bal- ance of the Ukrainian oil market; he shows the dependence of a dynamics of earnings before interest (EBI as a large element of CVA) on the oil re" neries' commitment. In article it also characterizes e( ective management of the average cost of the corporate capital according to criterion of economy on " nancial expenses; the second criterion is maximizing the sum of CVA. Q e author o( ers a technique of an application of market rate of WACC in CVA indicator (it allows to estimate e? ciency of " nancial management on the value-based management approach).


INTRODUCTION
Since revolution in the winter of 2013 Ukraine has signi cantly changed its both economic and civilization orientation.erefore in the short term the country should solve the problems of integration into more capitalized European investment market.e level of development of the investment market particularly is de ned by the standards of corporate governance quality of issuers (in particular, such quality means the timely providing with objective and exhaustive information on development of the issuer to all investors).Unfortunately, the assessment of economic development of the enterprises only through the traditional nancial performance (such as ROE, TSR, P/E and P/S) is non-e cient in the conditions of the Ukrainian shadow economy and a preponderance of tax optimizing schemes.at's why now the most urgent is the problem of objective assessment of development of the enterprises, which are functioning in the conditions of active transformational shadow economy processes.Also much attention is paid to questions of assess-ment of capital management e ectiveness through the principles of a value-based management (as a concept of strategic management which is the most focused on investors).

LITERATURE REVIEW
Some works of F. Weissenrieder (Weissenrieder, 1997), G. Friedl and T. Kettenring (Friedl, Kettenring, 2009), S.Mayers (Brealey, Mayers, 2008), D.Volkov (Volkov, 2005), T.Momot (Momot, 2006), O. Tereschenko (Tereshenko, Babyak, 2013) and other foreign and domestic scientists are devoted to the speci ed problems.However, this specialists concern the questions of valuation of the business which is functioning in the conditions of a sustainable development of non-shadow economy.erefore the main purpose of the o ered research is the describing the features of valuation of a cash value added (CVA) as the most objective and comprehensive indicator of economic development of the Ukrainian issuers which also excludes an opportunity of a nancial information distortion.e additional purpose of an article is the describing of in uence of nancial management e ciency on CVA dynamics.

Methodology
In our previous works we were comparing the main versions of gradation of nancial indicators of economic growth assessment.Also we were proving opinion on the greatest e ciency of CVA indicator in analysis of any enterprise when the local stock market is insu ciently developed.According to its essence, CVA characterizes a di erence between an operational cash ow which is generated by the enterprise in the period, and the current cost of capital expenses in the same period (Pirogov, Kravchuk, 2011, p. 208).
e main di erence of CVA from other value indicators is that it takes into account the sum of economic depreciation (it considers a possibility of perspective reinvestment of depreciation; pro tability of such reinvestment is at the level of the weighted average cost of capital).
Works (Volkov, 2005 ;Weissenrieder, 1997;Zavorotniy, 2014) are devoted to standard problems of CVA calculation.However the presented research explains an assessment of e ciency of nancial valuebased management of the enterprise in the conditions of local nancial crisis (the activity of such enterprises often is unpro table, management of nancial resources is complicated by reduction of the capital market).
e main data on economic activity of all Ukrainian oil re neries (OR) form an analytical base of o ered research.During the analysis of dynamics of CVA it is impossible to ignore dynamics of its main elements.According to the Boston Consulting Group version, the elements of CVA are (Zavorotniy, 2014, p. 87): EBI is an earnings before interest minus depreciation, CFI -net cash-ow before interest, D -depreciation, ED -economic depreciation, BI -brutto-investments, WACC -weighted average cost of the capital, n -average period of the exploitation of equipment, Ea is the initial value of depreciable assets.
When we study dynamics of EBI as the weightiest element of CVA, it is necessary to research the current development of a whole oil re nery economic sector.In Figure 1 we have shown a balance of Ukrainian crude oil market since 2007.Source: made by author by using o cial statistics and (Sapronov, Kostenko, 2012, p. 63).
Constant negative value of balance (as a combination of supply and demand in the market of oil and crude oil products) shows a preponderance of "grey" trade schemes which concern supply of oil (for example, through the criminal inserts into the oil pipelines).By such "grey" schemes the o cial statistical consumption volumes are satis ed.As shown in Fig. 1, decrease in balance by 2,1 mln.t. (or by 41%) during all period was generally causing by gradual reduction in volumes of the imported oil (by 9,1 mln.t. or decrease by 93%) and reduction of motor oil consumption by 3,8 mln.t. (or decrease by 27%).Reduction in national economy owing to system crisis in the market, ine cient state program "Ethanol" (Resolution No. 1044, 2000) and state programs for oil import diversi cation (Resolution No. 1572, 2000), ine cient tax legislation were causing such reduction in oil consumption.It caused permanent stops of oil re neries which o cially their CEOs were describing by some modernizations; also it caused an essential reorienta-tion of the Ukrainian market to import oil products by Mozyrskiy (Belarus) and by Mazheykyay's (Litva) oil re neries.Dynamics of the Ukrainian oil re neries' production capacity is represented in Table 1.
Table 1 Dynamics of the Ukrainian oil re neries' production capacity in 2004-2013, mln. t.Source: made by author by using the companies' o cial reports As shown in Table 1, since 2007 the Ukrainian oil re neries' production capacity seldom was exceeding 40% and has caused steady unpro tability of such business.at's why often the values of the biggest element of CVA -EBI -were negative (see Figure 2).Unpro tability forced oil re neries to start large-scale modernizations.However the analysis have shown that a considerable volumes of non-current assets were not being a main factor of high positive volumes of brutto-investments (see Figure 3), but such role was making by a high speci c weight of current assets in a structure of brutto-investments.Often the weighted average cost of the capital (WACC) is used to de ne a discount rate in the course of the CVA calculation.We think that the e ciency assessment of use of VBM nancial instruments, in particular, is made by comparing the following indicators: 1) a volume of CVA according to a book discount rate (the last element is de ned through the sum of book expenses to capital lenders and investors; we call it as a book value of WACC), and 2) a volume of CVA for the same period according to market discount rate (the last is de ned through the value of nancial resources which can be attracted on open nancial market; we call it as a market value of WACC).
Models of determination of WACC depend on the purpose of the analysis, features of economic development of the enterprise and analytical base.ere can be used: a stakeholder model (Freeman, Moutchnik, 2013), a capital asset pricing model (CAPM) by W. Sharpe (Van Horn, Vakhovich, 2008, p. 664-670), a M. Gordon's model (Brealey, Mayers, 2008, p. 213), a model by J. Lintner (Pirogov, Kravchuk, 2011) and other.
e most of authors de nes a weighted average cost of the capital as a pro tability rate which investors and creditors wish to get as a gain on using of their money by the enterprise (Blank, 2004, p. 703;Tereshenko, Babyak, 2013, p. 399).
Often experts associate WACC as only one type of value of the corporate capital, but now we want to describe the essence of the book (actual) value of WACC, to show the main goals of its de ning and the ways of its using.
As a di erence of the market or fair value of WACC (which is wideused in nancial analysis), according to our opinion, the book value of WACC is a pro tability rate which is implemented into all actual expenses which were concerning with use of all corporate nancial resources in the current year.In a case when the enterprise has no its preference shares such rate is calculated through a formula (Blank, 2004, p.194-202;Solodov, 2013): E is an equity, C is all corporate capital, D -the sum of dividends and other payments to investors, Debt -the sum of credits and bonds of the enterprise, FE -nancial expenses, Debt average -average annual sum of the corporate debt.
However, WACC calculation through the other models is aimed only for de ning the market or fair rate of a corporate pro tability (value of WACC).
In the context of VBM the book value of WACC has to be de ned only with a goal of an assessment of nancial management e ciency.An assessment can be done according to such criteria: -the economy on a value of equity or borrowed capital; -the greater sum of the value which has been generated for a current nancial period due to less discount rate (the book pro tability which has become less in comparison to an average market rate of a pro tability of the similar enterprise in the same period).
To assess the e ectiveness of a nancial management in the context of VBM, at rst, in Table 2 we should compare dynamics of the book and the market values of WACC.
Table 2 e e ciency of oil re neries' nancial management in 2011-2013, % Source: made by author Table 2 shows that the economy on the cost of the capital (WACC) characterizes a di erence between the market value of the capital of the enterprises (it is de ned through the CAPM) and the book value of their capital (is de ned by using the nancial reports).We can conclude that the market value of WACC of all enterprises was always exceeding its book value.Such economy was reached through: 1) zero value of equity (because of lack of dividend payments.By their de nition, implicit payments for using of corporate equity may not be displayed in nancial statements -that's why in the course of calculation we have used a classic methodic (Blank, 2004, p. 195;Solodov, 2013)), & 2) by low cost of borrowed resources from nancial institutions which are a part of common nancial and industrial group (as a rule).Let's de ne a dynamics of a book CVA according to a speci ed formula.But, at rst, only the regular CVA book values are insu ciently informative and have to be compared to similar CVA values which should be de ned by using the market values of WACC of the enterprises.Such analysis allows assessing an e ciency of nancial management by criterion of volumes of the CVA generated.To have the correct results we should make the following steps: -according to Ukrainian accounting standard, the expenses on corporate nancial activity belong to an account 140 "Financial Expenses" (such as percentage expenses and commission costs).In another words, to turn the real nancial expenses to size of market value of the capital we should multiply the sum of book nancial expenses of each enterprise by ratio.en may appear some bias caused by the sum of the commission costs (which volume is de ned not by a credit rate, but the main sum of a loan); -volume of income tax (IT) in case of change of a sum of nancial expenses (as result of multiplication by ratio of value of a borrowed capital) volumes have to be changed according to a sum: -when ∆ FE absolute is an absolute di erence between the book nancial expenses and the corrected nancial expenses (by ratio), t -income tax rate; -it is necessary to correct the earnings before interests and taxation (EBIT) according to a sum of increasing the nancial expenses: -by using corrected sums of the nancial expenses, of EBIT and of income tax we should de ne the volume of EBI and add it into the CVA formula; -in the CVA formula it is necessary to replace the book value of WACC with the market value of WACC.
Results of the speci ed list of accounting operations are illustrated in Figure 4.As shown in Figure 4 almost constantly negative values of CVA are caused by system crisis of the Ukrainian oil market.Besides, the greatest volatility of CVA values is observed at two largest enterprises -OJSC "Odesskiy NPZ" and OJSC "TFPK "Ukrtatnaphta".As Figure 4, , shows, the great di erence between CVA which were de ned by using the book and market values of WACC can be described through the great di erence between the values of WACC (according to Table 2, the book value of WACC of OJSC "Odesskiy NPZ" was 5 times lower than its market value in 2011, in 2013 it was 20 times lower because of preferential crediting by "SLB Invest Limited" as a participant of common nancial and industrial group "SEPEC").
Because in 2011 OJSC "TFPK "Ukrtatnaphta" was the only one of seven plants which at that time has been recycling oil, at that time it has been having the greatest volumes of current assets and, as result, the greatest volumes of brutto-investments.erefore the di erence between book and market values of WACC has caused the great di erence of BI*WACC; the last component has caused the great di erence between CVA (on a basis on the book and the market values of WACC) by 1,1 bln.UAH in 2011.
e greatest volumes of the enterprises' nancial expenses (despite low book values of WACC) have been a second reason of increasing such CVA of OJSC "Odesskiy NPZ" and OJSC "TFPK "Ukrtatnaphta".
If we would correct the book nancial expenses according to a ratio the resulting nancial expenses would be increased in several times.We characterize the book nancial expenses as abnormally high and as an e ective instrument of tax base minimization (because the ratio of market size of such book expenses to all credits is a signi cantly higher comparing to the value of such borrowed resources according to "Information about the liabilities" of both enterprises).In 2011 the value of borrowed capital of OJSC "TFPK "Ukrtatnaphta" was 19,84%, at the same time the ratio of the annual nancial costs to the total sum of its credits was twice higher -37,2%.e same ratios relatively to OJSC "Odesskiy NPZ" was 24,92% and 3,7% in 2011.at's why the great deviations in EBI were caused by multiplication of the book nancial expenses by ratio. is has become the main factor of the same deviations in CVA which were de ned through the book and the market values of WACC.
Volumes of nancial expenses of OJSC "Odesskiy NPZ" as its main instrument of tax minimization are the highest (see Table 3) because the nancial expenses have been forming over a half of all corporate expenses in 2012-2013.
Table 3 Dynamics of a part of nancial costs in all expenses of oil re neries in [2011][2012][2013] Source: made by author on a basis of the companies' o cial reports.
Experience of the nancial management at the Ukrainian enterprises is shown in Table 2 and in Figure 4, c.Such illustrations describe that in 90% cases the economy on the book value of WACC (comparing to its market value) has caused a higher CVA size.In the rest of cases (10%) the abnormally high deviations in CVA were caused by atypical conditions of some enterprises' development (OJSC "Odesskiy NPZ": minimization of a tax base through the increasing of nancial expenses, the book value of WACC was 20 times higher than its market value; OJSC "TFPK "Ukrtatnaphta": according to its income statement over 2011 the enterprise has been having the greatest sum of brutto-investments -over 20 bln.UAH).
As the ratios and of all enterprises less than 1 we can conclude: in most cases CVA would decrease if we would de ne the sum of CVA of such enterprises (on a basis of the book value of WACC) through the market value of their WACC: a n E WACC WACC We shouldn't forget that in 2011-2013 the most part of the Ukrainian oil re neries was not attracting credit resources (see Table 2).Because in most cases the sum of nancial expenses of the enterprises equaled to 0 it is not necessary to correct the book nancial expenses by ra tio and to correct the volume of EBI.
us, o ered research has caused the following conclusions: Figure 1 shows that the Ukrainian oil re ning sector for last 7 years has been coming to decadence.Among all oil re neries there only one is functioning (the OJSC's "TFPK "Ukrtatnaphta" plant is loaded only for 10 percent).e negative balance of the national oil market (see Figure 1) has caused negative annual volumes of an EBI (see Figure 2) which is a main component of corporate CVA.
Need of an assessment of VBM e ciency forced us to develop a technique for CVA correction according to a market value of WACC of the enterprise and related elements of its nancial statements.Such technique has allowed us to create a formula of CVA dependence on a di erence between the book and the market values of WACC (see an equation 5).
e analysis proved that the Ukrainian oil re neries in most cases were maximizing volumes of CVA (see Figure 4) through the economy on the book value of the capital in comparison with its market value (see equation 5).

Fig. 1 .
Fig. 1.Balance of the market of oil and crude oil products in Ukraine in 2007-2013, mln.t.Source: made by author by using o cial statistics and(Sapronov, Kostenko, 2012, p. 63).

Figure 2 .
Figure 2. Dynamics of EBI of the Ukrainian oil refi neries in 2011-2013, ths.UAH Source: made by author by using the companies' o cial reports.

Figure 3 .
Figure 3. Dynamics of the Ukrainian oil refi neries' brutto-investments in 2007-2013, ths.UAH Source: made by author by using the companies' o cial reports