Theoretical concepts and the models defining a modern paradigm of financial management and united in following groups are considered: defining a purpose and bases of financial activity and financial management; providing market estimation of cost of the companies, financial tools of investment in the course of their choice; connected with efficiency of the financial market, formation of market prices; connected with the management based on cost of the company.
Recently financial management has considerably expanded a circle of studied problems. If at its origin it considered basically financial questions of creation of new firms and the companies, and subsequently management of financial investments and bankruptcy problems now it includes practically all directions of management of the corporate finance. A number of problems of financial management last years has received the profound development in new, concerning independent fields of knowledge the financial analysis, investment management, riskmanagement, anti-recessionary management.
The system of the major theoretical concepts and the models united in four groups is put in a basis of a modern paradigm of financial management:
- Concepts and the models defining a purpose and bases of financial activity and financial
- Concepts and the models providing market estimation of cost of the companies, financial tools of investment in the course of their choice.
- Concepts and the models connected with efficiency of the financial market, formation of market
- Concepts and the models connected with management, based on company
To concepts and the models defining a purpose and bases of financial activity and financial management are concern :
The concept of a priority of economic interests of proprietors.
For the first time it has put forward American scientific Herbert Sajmon (the Nobel winner in economy in 1978) within the limits of the theory of decision-making developed by it in the commercial organisations, known as «the theory of the limited rationality». Instead of classical and neoclassical representations about a company purpose on utility and profit maximisation, it has put forward the alternative target concept of its economic behaviour which consisted in priority satisfaction of interests of proprietors. This purpose was gradually transformed in financial management to its overall objective maximisations of well-being of proprietors or maximisation of market cost of the company.
Modern portfolio theory. Harry Markovits, which in 1952г was its founder, has stated main principles of the concept in work «the Choice of portfolio». At the heart of the given concept methodological principles of the statistical analysis and optimisation of a parity of a risk level and profitableness of financial tools are put at formation of an investment portfolio for the purpose of maximisation of well-being of proprietors. The essential contribution to the further working out of this theory have brought James Tobin and William Sharp. Researchers of the given theory are winners of the Nobel Prize in economy.
The concept of cost of the capital. Initial theoretical workings out of this theory have been put in pawn in 1938 John Uilmsom in work «the Theory of investment cost». The big contribution to the further development of this concept was brought by the American researchers Franko Modigliani and Merton Miller, having systematised it and having co-ordinated with an overall objective of financial management in 1958 in the work «capital cost, the corporate finance and the theory of investments», received the Nobel Prize. The basic essence of this concept consists that company expenses on attraction and capital service can essentially differ depending on a source, therefore quantitative estimation of cost of the involved capital plays defining role at a choice of alternative sources of financing of actives of the company. Minimisation of the average cost of the capital еnsures maximisation of well-being of owners of the company with other things being equal.
The concept of structure of the capital. This as well as previous concept are basic коцепциями financial management also have been developed Franko Modigliani and Merton Miller in the above-named work. At the heart of the given concept the mechanism of influence of structure of the capital (a parity own and extra) on market cost of the company is put in pawn. The given concept has laid down in a working out basis «Models of an estimation of efficiency financial левериджа» which has found wide application in practice in firm financial management.
The theory дивидендной politicians. The beginning of the given theory was necessary John Lintnerom in work «distribution of the corporate income between dividends, capitalisation and taxes». However further the most essential conclusions on this problem have been made in 1961г. Mertonom Miller and Franko Modigliani in work «Дивидендная a policy and increase of cost of actions», in which рассмативается the influence mechanism дивидендной politicians on market cost of the company, the price of its actions, allowing optimizi-rovat the size flowing дивиденджов taking into account influence of various factors.
Concepts and the models providing market estimation of cost of the companies, financial tools of investment in the course of their choice.
The concept of value of money in time. Bases of the given theory have been put in pawn in 1930г. Irvinom Fisher in work «the percent theory: how to define the real income in the course of investment decisions. Further John Hirshlejfer has considered fuller mechanism of this concept in twist to work« the Theory of the optimum investment decision », an essence кторой consists that the present cost of money always above their future cost and it is connected with alternative of their possible investment, inflation and risk. Thanks to this theory various models of discounting of the monetary streams, found wide application in practice of financial management, estimated activity have been developed.
The concept of interrelation of risk and profitableness. Bases of this theory have been formulated in 1921 by Frenkom Knight in the book «Risk, uncertainty and profit». Копцепция has received the further development in works of numerous researchers and not пркращается till today. Its essence consists in directly proportional dependence between level of the expected income and level of risk accompanying it. The base of this concept has formed the basis for construction of plural models of an estimation of financial actives, financial tools of investment, a technique of the analysis investment потрфеля.
Models of profitableness of actions and bonds. For the first time John Uilmson in 1938г. Has formulated models of an estimation of actions and bonds on the basis of their profitableness (dividends and percent) in the work «the Theory of investment cost». With the advent of new kinds of financial tools the system of models of financial tools has been added Майроном Гордоном in work «Investment, финансироваие and corporation estimation of cost» in 1962г. And Scott Bauman in 1969г. In work «the Investment income and насттящая cost». At the heart of all models the discounted cost of ozhidae profitablenesses of financial tools lays at a corresponding risk level.
Model of an estimation of financial actives taking into account regular risk.
It has been developed by American scientist Uilmom Sharpom in 1964г.в to work of "the Price of financial actives» in which basis definition of necessary level of profitableness of separate kinds financial инвтрментов investments taking into account level of regular risk lays. It formulates «the schedule of the Line of profitableness of securities», establishing dependence of level of regular risk financial иснтрументов investment and necessary profitableness on them. Later this model has been improved by John Lintnerom in 1965г. And Яном Моссиным in 1966г.
Model of an estimation of options. It has been offered by Fisher Blekom and Майроном Скоулзом in 1973г. In work «Pricing of corporate obligations» for an estimation of the most widespread in that period of derivative securities
European "koll-options" also reflects conditions of pricing of such financial actives. Later alternative models of this kind in 1973г have been developed. Model роберта Мертона «the Theory of rational pricing of options» and in 1976г. John Koksa's model and Стефана Росса in work «Tsenoobra-zovanie options in alternative stochastic process», and others.
Concepts and the models connected with efficiency of the financial market, formation of market prices.
The hypothesis of efficiency of the market (Efficient Market Hypothesis-EMH) has been put forward in 1970г. Eugene Фама in work «the Effective markets of the capital: the review of theoretical and practical researches». Даная the hypothesis reflects dependence of price efficiency of the financial market on level of a supply with information of its participants and has given an impulse to numerous researches in the field of forecasting of profitableness of the financial actives connected with their underestimation by the financial market. Price formation in соотвествии with the given hypothesis assumes, that expected profitableness of securities is a random variable which reflects сооветствующий knowledge level (an information pool) participants of the market and depending on the last distinguish weak, average (moderated, semistrong) and strong price efficiency of the share market. In first two forms the hypothesis about efficiency of the market proves to be true practice, but cannot обяъснить the separate especial situations arising in the financial market. The participants to the greatest degree owning the information, have priority position in search and acquisition of the financial actives underestimated by the market (financial tools of investment), i.e. the quoted prices on which differ from their market cost.
In the conditions of the weak form of efficiency the current prices for actions completely reflect dynamics of the prices of the previous periods, i.e. the potential investor cannot take for itself additional benefits, analyzing trends, studying the price statistics. In the conditions of the moderate form of efficiency the current prices reflect not only changes of the prices available in the past, but also all equally accessible to participants the information. The strong form of efficiency means, that the current prices reflect not only the popular information, but also data, access to which is limited. Market cost reflects the present or valid cost of the action based on the future monetary streams. With increase in efficiency of the market possibilities for gamble decrease. The competition between well informed investors leads cost of actions of their valid cost.
Certainly, creation of the effective market, possible basically, in practice нереализуемо. Any of existing securities markets does not admit analysts as effective full sense of this word though existence of the weak and average form of efficiency of some markets proves to be true empirical researches. As EMH not подтвержается in the strong form those who owns the insider information can receive the raised profit only. Such cases which were taking place in practice say that market prices all the same do not reflect not published information.
In the conditions of market economy the majority of the companies is connected with the capital markets on which it is possible to find additional sources of financing, to generate an investment portfolio, to support solvency and liquidity of the company, to receive the additional speculative income. Acceptance of administrative decisions, a behaviour choice in the capital market, activity of operations are closely connected with the concept of efficiency of the market. The volume of transactions on purchase or sale of securities depends on that, how much precisely current prices correspond to internal costs [1]. The price depends on many factors, including from the information. How much quickly the information is reflected in the prices and characterised by level of efficiency of the market.
According to U.Sharpa absolutely effective market is such market on which the price for each valuable paper is always equal to its investment cost. Investment cost on Шарпу represents paper cost at present taking into account a perspective estimation of level of the price of demand for it and incomes on it in the future, calculated by well informed and capable analysts which can be considered as fair cost of a paper [2].
According to this hypothesis at full and an easy approach of participants of the market to the information the action price at present is its best real cost. In the conditions of the effective market any new information in process of its receipt is immediately reflected in the prices for actions and other securities. Moreover, this information arrives on the market in a random way, i.e. It is impossible to predict in advance when it will arrive and in what degree it will be useful.
There are two basic characteristics of the effective market.
First, the investor has no logical arguments to expect большего, than on the average, the income on the invested capital at the set degree of risk. It at all does not mean, that the investor cannot receive or will not receive higher income, the main thing in other such outcome cannot be expected.
Secondly, income level on the invested capital is function of degree of risk (the best example interest rates under short-term securities). Exact dependence only character of communication the above risk, of course, is not known, clear, the there should be a profitableness more. The requirement of higher profitableness, certainly, is reflected in a market price of actions.
Recently the governments tried to encourage increase in market efficiency in several ways [3]:
- дерегуляцией the share market and комьютеризацией process of carrying out of transactions that has allowed to increase speed of reaction to the global information. The Internet offers fine possibilities for rupture narrowing between large and small participants of the auctions;
- Encouragement of merge and purchases as ways of increase of efficiency of management. The prices for actions of badly working companies fall, and the companies turn to candidates on acquisition;
- Consideration by the governments of privatisation of municipal services as means of transition of the state organisations in market working conditions.
Let's formulate consequences of market efficiency for corporate managers. In the quoted companies managers and investors are connected directly through market prices. Corporate actions are quickly reflected in cost of actions and means the following:
- инвесторок uneasy to deceive financial reports where the sizes of the general profit are inflated, but not the sizes of a stream of a cash;
- Corporate management болжен to be directed on принячтие the decisions increasing well-being of shareholders;
- Release time in the reference of securities not so is critical. Market prices are reflexion of the accessible information and reasonably estimate risk degree;
- When the manager possesses иенформацией, yet not let out on the market, there is a possibility to influence the
The concept of agency costs. Authors of this theory are the American researchers Michael Dzhenen and William Mekling who have published in 1976г. Work «the firm Theory: administrative behaviour, agency expenses and structure of proprietors». At the heart of this concept the assumption lays, that between proprietors or shareholders of the company and managers there can be a conflict of interests in maintenance of maximisation of well-being of owners. In the concept the exit from this conflict by means of additional stimulation of participation in profit of managers, and also an effective control of their activity by proprietors that is connected with certain expenses of the means caused by division of the property rights and management by the company is given. Agency expenses also render merge on formation and распеределение to profit, дивидендную to the politician and accordingly, on the price addressing on the company share market.
Concepts ассимитричной information. Основателми the given concept are Stewart Myers and Nicolas Majdzhlaf, published it in 1984г. In a soya to work «Corporate financing and investment decisions in conditions when firms own the information which investors» have no. The essence of this concept consists in possession possible investors (buyers of securities of the company) in smaller volume of the information on its activity, than its managers. The mechanism ассимитричной information on a miscellaneous is shown at issue of actions and bonds. When cost of securities «is overestimated by the market», managers carry out additional issue of these securities in which result predicted profitableness it is artificial is overestimated, and investors sustain subsequently financial losses.
The arbitration theory of pricing. The author of this theory is Стефен Росс, which in 1976г. Has stated it in work «Артитражная the theory of pricing of financial actives» and it is alternative to model of financial actives of U.Sharpa. The basis of this theory is made by position that in the competitive financial markets "arbitration" (the speculative operations based on a difference of market prices in the separate markets) alignment of real market prices of financial actives in соотвествии with level of their risk and profitableness provides. The mechanism артитража allows to provide restoration of price balance in the various financial markets. By authors of the given theory have been offered a number of models of an estimation of real profitableness of financial actives taking into account influence of separate factors. In 1984г. On the basis of a concrete definition of these factors the given models have been specified by Richard Rollom in work «Use of the theory of arbitration pricing at strategic planning of an investment portfolio».
Concepts and the models connected with management of the company, based on cost.
The concept of economic profit. Occurrence of the concept of economic profit concerns times of economic researches Альфреда of Marshall writing still in 1890: «or the managing director) profits after a percent deduction on the capital under the current rate, it is possible to name that remains from it (the proprietor its enterprise or administrative profit» [4]. Thereby Marshall at definition of the cost created by the company at any moment (i.e. its economic profit) pays attention to the account not only the expenses carried in book keeping on the cost price or expenses of the period, but also on the account of alternative costs of attraction of the capital occupied in business.
As the further development of the given concept the doctrine about alternative costs and accurate fixing of rupture between accounting and economic (enterprise or administrative) profit has served.
The big contribution to development of the theory of economic profit have brought Irving Fisher in 1930th years and the Nobel winners Franko Modigliani and Merton Miller in the late fifties the beginning 1960. Having investigated communication between pure current cost of the company and the discounted stream of expected monetary incomes, they have shown, that investment decisions of the company with positive pure current cost are the basic determinative of growth of cost of the company and costs of its actions.
Residual monetary stream RCF is an updating of an indicator of residual profit RI where instead of the income the operational monetary stream of the company is substituted.
The concept of the economic added cost (EVA).
The concept of the economic added cost and the market added cost is developed by Dzhouelom Stern from consulting company Stern, Stewart&Co.
The economic added cost represents the residual profit remaining after expenses on service of all capital, including own while the registration profit is defined without expenses for own capital.
The concept of the market added cost.
Well-being of shareholders as much as possible increases at difference increase between market cost of actions of firm and balance cost of own capital given to shareholders. This difference is called as the market added cost (Market value added, MVA).
The concept of the monetary added cost Monetary added cost CVA (CASH VALUEADDED) is changed EVA in which instead of profit the pure operational monetary stream is used. Hence, CVA bypasses a problem of the fictitious accounting expense amortisation which seldom corresponds to the valid scheme of extraction of benefits from long-term actives.
CVA the economic invested capital which will ignore an accounting principle of "successful efforts» should be used and to include investments into non-material actives, including research and development, advertising. In CVA to the current accounting capital the saved up amortisation can be added to receive size of the capital invested in business. It is necessary for making, as amortisation is not excluded from an operational monetary stream, as it in case of economic profit. In other words, if in EVA amortisation is considered as a part of operational profit, in CVA as a part of the invested capital. In it both continuity, and main difference CVA from EVA.
Idea CVA was born in reply to the found out problems of economic profit. At the moment of acquisition of new actives capital costs,
ЭКОНОМИКА ECONOMICS Стр. 11
increase further as amortisation is charged, capital costs proportionally decrease. For this reason EVA forces managers to abstain from investments, and sometimes even stimulates to get rid of valuable actives, to keep old actives with low balance cost and low capital costs, to contain growth. CVA shows in absolute expression size of an operational monetary stream over expenses for the capital. This size can be and negative, that will mean nedostatochnost a monetary stream for preservation of cost of the invested capital.
The concept of cost for the shareholder (Share Holder Value, SHV) has been developed by the professor of Northwest university (one of founders ALCAR) Альфредом Раппапортом in the mid-eighties XX centuries. Cost for the shareholder in the given concept is understood as a difference between cost of the company and market cost of the extra capital.
Альфред Раппапорт asserts, that the estimation of economic results by subtraction of actual profit from expenses for capital attraction any more does not reflect a reality and should not be used as base for calculation of wages of heads as expectations of profit from investors, especially concerning the most effective companies (at which the share of non-material actives is usually great), are already reflected in the actual price of the action, and it usually is much more expenses for capital attraction.
Maximisation of the added cost opens больший open space for development of productive forces, than profit maximisation as assumes also steady increase in wages counting on each fulfilled hour and expansion of cumulative demand of hired workers so increase of efficiency of reproduction; labour, organizational-structural, technological, grocery.
Model of internal norm of profitableness on the basis of a stream monetary среств (CFROI). The concept developed by Boston consulting group Boston Consulting Group and HOLT Value Associates, is based on a known method in the investment analysis of internal norm of profitableness.
Supporters of a method of monetary profitability of investments Бартли Мэдден from company HOLT Value Associates assert, that considerable advantage of model CFROI consists that data about monetary profitability of investments for last period and about real rates of a gain of actives give evident representation both about last achievements of the company, and about key motive forces of predicted successes.
Monetary profitability of investments
(Cash Flow Return on Investment CFROI) an economic indicator of efficiency and a company estimation, reflects average basic rates of profitableness under all existing investment projects as it is corrected on an index of inflation or in current monetary units and can be calculated as the average internal norm of profitability of projects of the enterprise. Company BCG defines CFROI as «a share of the constant monetary stream generated by business in given year, expressed in percentage of the sum of the money resources invested in actives of the company» [5]
The concept of management on the basis of expectations.
Cost management of the company on the basis of expectations or management on the basis of expectations (Expectations Based Management-EBM) the term patented by consulting company Monitor Group, drives the important concept of expected and not expected investments, connects criteria of efficiency of activity with system of its estimation and results, pawns a basis of acceptance of effective administrative decisions, reliably supervises creation of value for proprietors and investors.
Concept EBM consists in the following: the share price grows when efficiency of activity exceeds expectations of the market both in shortterm, and in the long-term period. The share price reflects expectations of investors concerning perspective monetary streams of the company. If profitability of the invested capital appears above the capital price, but below expected level or if expectations are reconsidered towards reduction the share price falls. The company overall performance is estimated not by the enclosed capital, and that, expectations from its activity were how much justified. Main difference EBM from other administrative concepts consists that excess of actual efficiency over expected is a primary factor of creation of value for the company. The share market gives advantage to the companies, awarding from whom expect high results.
Advantage of the cost approach to management consists in that, the system of the indicators used in this approach, is most closely adhered to the basic purpose of business to creation of riches of shareholders and, thus, is the optimal «system of the balanced indicators» from all possible.
Estimation of cost of the company (business) last decades became the important economic discipline, the effective tool of applied financial management and a subject of wide studying and discussion as behind each significant decision of the company on distribution of resources there are concrete calculations, substantiations and forecasts. And distribution of resources, in turn is the main engine of the company and the key factor of efficiency of its activity. Moreover, extremely risky to make financial administrative decisions, not having accurate representation on current cost of the company; it can lead to that financial results of operations with own capital and other financial transactions will be much more below optimum for owners of the company. Company estimation of cost helps to understand, what factors do the company attractive to buyers and investors and to what it is necessary to aspire to justify the enclosed investments.
BIBLIOGRAPHY
- Kovalev V. Finansovyj менеджмент:теория and practice. М: the Prospectus, 2010. 1024 p. (p.104)
- Шарп У, Alexander Г, Бэйли Investments М: INFRA TH, 2001. 1028 p. (p.108)
- Пайк Р, Nile Korporativnye the finance and investment. 4 izd./lanes about EnglishSPb.:Питер, 2006.-784 with.
- Marshall. Principles of Economics. London, 1927. p.95-596.
- Martin John Д, Petti William VBM the management based on cost. Dnepropetrovsk: Balance Business of Axle boxes, 2006. p.3.