Ensuring of financial sustainability of railway transport in Ukraine
The article shows the important role of railway transport in the Ukrainian economy. Difficulties in the process of reforming the industry and the economic crisis in Ukraine determine deterioration in the financial condition of the railway transport. This reflects negatively on the ability to carry c...
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irk-123456789-640262014-06-10T03:01:29Z Ensuring of financial sustainability of railway transport in Ukraine Kravchenko, O.O. Problems of development strategy and financial-economic regulation of industry The article shows the important role of railway transport in the Ukrainian economy. Difficulties in the process of reforming the industry and the economic crisis in Ukraine determine deterioration in the financial condition of the railway transport. This reflects negatively on the ability to carry cargo and passengers with the necessary quality and speed. Therefore the aim of the article is to study the features of the financial condition of railway transport of Ukraine and the formation of the system of constraints to maintain its financial stability in unsteady conditions of the institutional environment. The article stipulates that used indicators describing the financial condition of the enterprises do not consider the particular characteristics of the plant and the financial and economic activities of a particular object, which leads to incorrect test results. Investigated the financial condition of the railway transport of Ukraine. It is shown that in order to prevent further accumulation of negative trends in operating and financial sector there is an objective need for the formation of severe restrictions managing its financial assets to improve their effectiveness in the short and long term. The article suggested and justified system of constraints, which includes 1) a primary funding operations, and 2) the volume balance of positive andnegative cash flows, and 3) synchronization generating operational, financial and investment cash flow, and 4) maintaining an optimum balance of funds as reserves to ensure financial sustainability 5) providing liquidity cash flow. Implementation of the proposed system of constraints will contribute to a) improve the operational management of cash flows from a position of balance of income and expenditure of funds, and b) increase the liquidity of the balance of the industry, and c) increase the investment attractiveness of the railway transport of Ukraine, and d) the release of funds from the operational turnover for capital investment in the development of the industry. Improving the management of the financial condition and financial sustainability of railway transport should also include 1) reduction in line with the current regulatory framework, and 2) the development of methodology for assessing the financial condition of the provisions and financial stability, and 3) implementation of the necessary changes in the organization of financial work of railway transport; 4) the full implementation of the system of financial planning, and 5) development of monitoring operational and financial performance. Статтю присвячено дослідженню фінансового стану залізничного транспорту України та можливості застосування існуючих підходів (показників фінансового стану) до аналізу ефективності управління фінансами галузі. Запропоновано систему обмежень для підтримки фінансової стійкості функціонування залізничного транспорту України у короткостроковій та довгостроковій перспективі. Статья посвящена исследованию финансового состояния железнодорожного транспорта Украины и возможности применения существующих подходов (показателей финансового состояния) к анализу эффективности управления финансами отрасли. Предложена система ограничений для поддержки финансовой устойчивости функционирования железнодорожного транспорта Украины в краткосрочной и долгосрочной перспективе. 2014 Article Ensuring of financial sustainability of railway transport in Ukraine / O.O. Kravchenko // Економіка промисловості. — 2014. — № 1 (65). — С. 74-83. — Бібліогр.: 34 назв. — англ. 1562-109Х http://dspace.nbuv.gov.ua/handle/123456789/64026 336.279:338.47:656.2(477) en Економіка промисловості Інститут економіки промисловості НАН України |
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Digital Library of Periodicals of National Academy of Sciences of Ukraine |
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Problems of development strategy and financial-economic regulation of industry Problems of development strategy and financial-economic regulation of industry |
| spellingShingle |
Problems of development strategy and financial-economic regulation of industry Problems of development strategy and financial-economic regulation of industry Kravchenko, O.O. Ensuring of financial sustainability of railway transport in Ukraine Економіка промисловості |
| description |
The article shows the important role of railway transport in the Ukrainian economy. Difficulties in the process of reforming the industry and the economic crisis in Ukraine determine deterioration in the financial condition of the railway transport. This reflects negatively on the ability to carry cargo and passengers with the necessary quality and speed. Therefore the aim of the article is to study the features of the financial condition of railway transport of Ukraine and the formation of the system of constraints to maintain its financial stability in unsteady conditions of the institutional environment. The article stipulates that used indicators describing the financial condition of the enterprises do not consider the particular characteristics of the plant and the financial and economic activities of a particular object, which leads to incorrect test results. Investigated the financial condition of the railway transport of Ukraine. It is shown that in order to prevent further accumulation of negative trends in operating and financial sector there is an objective need for the formation of severe restrictions managing its financial assets to improve their effectiveness in the short and long term. The article suggested and justified system of constraints, which includes 1) a primary funding operations, and 2) the volume balance of positive andnegative cash flows, and 3) synchronization generating operational, financial and investment cash flow, and 4) maintaining an optimum balance of funds as reserves to ensure financial sustainability 5) providing liquidity cash flow. Implementation of the proposed system of constraints will contribute to a) improve the operational management of cash flows from a position of balance of income and expenditure of funds, and b) increase the liquidity of the balance of the industry, and c) increase the investment attractiveness of the railway transport of Ukraine, and d) the release of funds from the operational turnover for capital investment in the development of the industry. Improving the management of the financial condition and financial sustainability of railway transport should also include 1) reduction in line with the current regulatory framework, and 2) the development of methodology for assessing the financial condition of the provisions and financial stability, and 3) implementation of the necessary changes in the organization of financial work of railway transport; 4) the full implementation of the system of financial planning, and 5) development of monitoring operational and financial performance. |
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| author |
Kravchenko, O.O. |
| author_facet |
Kravchenko, O.O. |
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Kravchenko, O.O. |
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Ensuring of financial sustainability of railway transport in Ukraine |
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Ensuring of financial sustainability of railway transport in Ukraine |
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Ensuring of financial sustainability of railway transport in Ukraine |
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Ensuring of financial sustainability of railway transport in Ukraine |
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Ensuring of financial sustainability of railway transport in Ukraine |
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ensuring of financial sustainability of railway transport in ukraine |
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Інститут економіки промисловості НАН України |
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2014 |
| topic_facet |
Problems of development strategy and financial-economic regulation of industry |
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http://dspace.nbuv.gov.ua/handle/123456789/64026 |
| citation_txt |
Ensuring of financial sustainability of railway transport in Ukraine / O.O. Kravchenko // Економіка промисловості. — 2014. — № 1 (65). — С. 74-83. — Бібліогр.: 34 назв. — англ. |
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Економіка промисловості |
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–––––––––––––––––––––––––– Економіка промисловості Economy of Industry ––––––––––––––––––––––––––
74 ISSN 1562-109X
2014, № 1 (65)
UDC 336.279:338.47:656.2(477) Olga Oleksiivna Kravchenko,
PhD in Economics
State Economic and Technological
University of Transport, Kiev
ENSURING OF FINANCIAL SUSTAINABILITY
OF RAILWAY TRANSPORT IN UKRAINE
Railroads are as important to a well-functioning, modern society as clean water and electricity
М. Sussman, President, «Strategic Rail Finance»
Transport is a specific sector of the na-
tional economy of Ukraine, providing its inter-
nal and external transport and economic rela-
tions and satisfying the manufacturing and non-
manufacturing needs in freight and passenger
transport, promoting more rapid development of
the productive forces of society, regional rela-
tions and involvement in the process of social
reproduction of resources all over the country.
Transport, linking production factors in a com-
plex network of relationships between producers
and consumers, it is not itself a sufficient condi-
tion for economic development, but the lack of a
developed transport infrastructure can be seen as
a deterrent factor in the development of the na-
tional industry. Its optimal structure and effi-
cient operation is a prerequisite functioning of
the economy as a whole, its stabilization and
growth, development of foreign economic rela-
tions, improvement of living standards.
A special place in the transport infrastruc-
ture of Ukraine remains for the railway, which is
manufacturing and technological complex of
organizations and enterprises of the railway
transport, designed to meet the needs of social
production and population in transportation on
domestic and international communications and
provision of other transport services to all con-
sumers without restrictions featured with owner-
ship and activities [1]. System advantages of
railway transport allow it to retain the priority
position as the main mode of transport back-
bone, not only now but also in the long term.1
The railway transport plays an important
role in the economy of Ukraine. So, the industry
in 2013 provided over 83% of freight (excluding
pipelines) and 38% of passenger (including city
train) transportation, implementation of all mod-
es of transport.2
Meaning of industry in the national econ-
omy shows TU-indicator as well.3 As can be
1 System advantages of railway transport is
the ability to handle large passengers and cargo;
higher speed compared with other modes of trans-
port; higher energy efficiency, including electric, a
limited adverse effect on the environment, including
visual, minimum area land, no delays and traffic im-
pediments related to road congestion, lack of time
spent on registration; possibilities by railway stations
in cities, including in the central portion thereof, a
higher degree of security compared to other modes of
transport [2, p. 269].
2 In terms of turnover of railway transport of
Ukraine takes 1st place in Europe and 2nd in the CIS,
in terms of passenger traffic – 2nd in the CIS and 4th
in Europe. In terms of freight railways of Ukraine
take the 4th place on the Eurasian continent, second
only to the railways of China, Russia and India. Traf-
fic density Ukrainian Railways (annual traffic for 1
km) is 3–5 times higher than that of developed Euro-
pean countries [3].
3 TU (Transportation Unit) – specific transport
unit representing a particular ratio of turnover (in
tonne-kilometers) and passenger (passenger-kilome-
ters) to the country's GDP in U.S. $ and characterize
the contribution of individual modes of transport in
GDP.
PROBLEMS OF DEVELOPMENT STRATEGY
AND FINANCIAL-ECONOMIC REGULATION OF INDUSTRY
© O.O. Kravchenko, 2014
–––––––––––––––––––––– Економіка промисловості Экономика промышленности ––––––––––––––––––––––
ISSN 1562-109X 75
2014, № 1 (65)
seen from Fig. 1, the railway transport contribu-
tion to GDP of Ukraine exceeds more than three
times the contribution of road transport, which is
a major competitor in the market for freight and
passenger traffic. The contribution of the sector
in the period from 2005 to 2012, not only did
not decrease, but increased from 48,2% to
54.4% (Table 1).
0,00
0,50
1,00
1,50
2,00
2,50
3,00
3,50
TU
-in
di
ca
to
r
railway 3,20 2,73 2,22 1,73 2,08 1,96 1,78 1,63
road 0,84 0,74 0,60 0,55 0,76 0,67 0,54 0,51
water 0,19 0,17 0,13 0,09 0,07 0,07 0,05 0,03
2005 2006 2007 2008 2009 2010 2011 2012
Fig. 1. The changes of the TU-indicator for certain types of transport of Ukraine
(calculation based on the data [4])
Table 1
Structure of the contribution of individual modes of transport in Ukraine's GDP, %
(according to [4])
2005 2006 2007 2008 2009 2010 2011 2012
All modes of transport, includ-
ing
100,0 100,0 100,0 100,0 100,0 100,0 100,0 100,0
railway 48,2 49,5 49,3 54,7 47,9 50,1 52,5 54,4
road 12,7 13,4 13,4 17,4 17,5 17,0 16,0 17,0
water 2,8 3,2 2,8 2,8 1,6 1,7 1,3 1,0
other modes of transport 36,3 33,9 34,5 25,1 33,1 31,2 30,1 27,6
As «Ukrzaliznytsya» is one of the largest
employers and budgeting enterprise in many
regions of Ukraine (over 352 thousand em-
ployees) [3].
Now in Ukraine railway transport is expe-
riencing quite a difficult period, involving both
the «stalling» of the process of its reform,1 and
1 Researchers transport sector reform process
railway transport of Ukraine is seen as a key factor in
the economic crisis in Ukraine, one manifesta-
tion of which is to reduce the volume of produc-
tion, the basis of the nomenclature of rail
the future development of the industry, its effective
adaptation to the market environment. However, as
noted by Yu.M. Tsvetov, M.V. Makarenko et al,
«Ukraine as of 01.01.2012 actually no started to
reform rail industry...» [5, p. 7], as there is no specif-
ic (developed) reform program. By the end of 2013
the situation has not changed.
–––––––––––––––––––––––––– Економіка промисловості Economy of Industry ––––––––––––––––––––––––––
76 ISSN 1562-109X
2014, № 1 (65)
freight.1 The result was the deterioration in the
financial condition of the industry (Table 2),
which adversely affects its capacity to transport
cargo and passengers with the necessary quality
and speed.2
Railway transport is a strategically impor-
tant sector of the national economy, the condi-
tion and quality of which depends not only on
the prospects for economic and social develop-
ment, but also the ability of the state to effec-
tively carry out its functions relating to the pro-
tection of national sovereignty and national se-
curity, to ensure the needs of citizens in carriag-
es, creating conditions to align the socio-
economic development of regions and other.
Deterioration in the financial condition of the
industry, reducing its financial sustainability
negative impact on funding opportunities and
investment activity and, thereby, conveyances3
and opportunities of railway infrastructure ca-
1 The basis of the nomenclature of rail trans-
portation in Ukraine is made by coal and coke, petro-
leum and petroleum products, ore, ferrous metals,
chemicals and fertilizers, the weight of which is more
than 67 % of the transported cargo (calculation based
on the data [4]). Thus in 2013 the carriage of coal
and coke amounted to 99.6%, petroleum and petro-
leum products – 95.5%, ore – 194.7 %, ferrous met-
als – 105.6 %, chemical and mineral fertilizers – 77.3
% of level in 2012, overall freight volumes fell by
3.4%. [4] The decrease in traffic was observed in
2012 by 2.5%.
2 Depreciation of railway transport in the pe-
riod from 2005 to 2012 increased from 56.7% to
98.4% (calculated on the basis of the financial state-
ments of «Ukrzaliznytsya»), which is accompanied
by a significant technological gap: in Ukraine is used
rolling stock (locomotives and wagons) of the second
generation, while in developed countries is used roll-
ing stock of fifth generation. Obsolescence and de-
preciation affects the quality of freight and passen-
ger.
3 According to experts on current trends in fi-
nancing and investment activity of railway transport
will be reduced of potential traffic volumes at the far
post: in 2014 – to 48.9 million people, in 2015 – to
45.8 million people, 2016 – up to 41.5 million people
[6]. In 2014, the deficit of the rolling stock will be
580 cars and 102 electric locomotive in 2015 – 1465
cars and 143 electric locomotive in 2016 – 1869 cars
and 175 locomotives in 2017 – 2364 cars and 213
locomotives [7].
pacity. Therefore, the problem of improving the
financial condition and improve the financial
sustainability of railway transport is very rele-
vant in the circumstances.
Theoretical background and practical ap-
proaches to ensuring financial sustainability is
widely reflected in the works of Russian and
foreign scientists. Change issues of financial
condition and financial sustainability are de-
voted to the works of Blanc I.A., Bocharov
V.V., Braley R., Brigham Yu., Grachev A.V.,
Eletskikh S.Ya., Zabrodskiy V.A., Kizim N.A.,
Kostyrko L.A., S. Myers et al [8–15]. Signifi-
cant contribution to the development of metho-
dology for assessing the financial sustainability
was introduced by E. Altman, R. Taffler, Ti-
show G., Bakanov M.I., Melnik M.V., Sheremet
A.D. et al [16–19].
However, it should be noted that, with re-
gard to railway transport special studies have
been conducted. This can be explained as fol-
lows. First, railway transport considered and
continues to be regarded as a kind of
«perpetuum mobile», which will operate at all
times and under all conditions, that allows to
«ignore» on the severity of existing problems in
the industry.4 Secondly, the attention of the lead-
ing researchers focused on railway transport to
identify key areas of industry reform, resolving
complex issues to improve the efficiency of its
industrial and financial-economic activity. In
this case the financial administration of railway
transport, including its financial condition and
financial sustainability are not considered that in
the context of non-stationary institutional envi-
ronment can lead to disastrous results not only
for the industry, but also the national economy
of Ukraine as a whole [20].
Hence the purpose of this article is a study
of the peculiarities of the financial condition of
railway transport of Ukraine and the formation
of the system of constraints to maintain its fi-
nancial sustainability in unsteady conditions of
the institutional environment.
4 Modern history provides examples of virtual
elimination of railway transport (Colombia, Latvia,
etc.) or a significant deterioration in its parameters
(UK) due to lack of proper attention to its problems
and needs.
–––––––––––––––––––––– Економіка промисловості Экономика промышленности ––––––––––––––––––––––
ISSN 1562-109X 77
2014, № 1 (65)
Table 2
Ratio analysis of the financial condition of railway transport of Ukraine
(according to financial statements «Ukrzaliznytsya»)
Indicator on
01.01.09
on
01.01.10
on
01.01.11
on
01.01.12
on
01.01.13
Return on investment ratio 0,003 0,001 0,004 0,008 0,005
Net profit ratio of operating activities 0,005 0,003 0,010 0,013 0,008
Absolute liquidity ratio 0,049 0,008 0,009 0,138 0,015
Current ratio (cover) 0,526 0,523 0,508 0,711 0,534
Financial stability ratio 1,830 1,770 1,992 2,493 2,190
Financial independence (autonomy)
ratio 0,646 0,639 0,666 0,713 0,684
Decrease / increase in liabilities 153,5 148,3 107,0 98,5 115,5
In world practice, financial management
adopted the financial condition of any entity
(corporation, industry) to characterize using li-
quidity ratios, financial sustainability and eco-
nomic activity, for which fairly strict limits are
set «allowing» uniquely diagnose the financial
condition of the object. However, current ap-
proaches to the assessment of the financial con-
dition and financial sustainability in modern
conditions cause major issues.
So, Grachev A.V. notes that a) the formu-
la for calculating of the coefficients used and
recommended boundary of changes are not cer-
tain, and b) the accounting policies have a sig-
nificant impact on the value of the calculated
coefficients c) these ratios are not linked to a
very important indicator for the enterprise – val-
ue added, d) calculation of coefficients at the
beginning and end of the reporting period and
the identification of their deviations from
the standard values still does not disclose the
mechanism of achieving themselves normative
values; and e) evaluation of financial and eco-
nomic condition of the company only at the be-
ginning and only at the end of the reporting pe-
riod does not provide information on the work
of the enterprise for the entire reporting period
[21].
Also it should be noted that methods of
calculating financial performance indicators are
considered universal and, therefore, suitable for
the analysis of any production and economic
system. However, they do not address specific
industrial and financial-economic activity of a
specific object, which can lead to incorrect re-
sults. This is true for the railway transport of
Ukraine. As seen from Table 2 level of financial
stability and financial independence of railway
transport increases from 2009 to 2012. At the
same time the established standards are main-
tained: values of financial sustainability ratio
exceeds 1, and financial independence ratio -
0.5. This testifies to the strengthening of the fi-
nancial condition of the railway transport. How-
ever, analysis of the formation of financial re-
sources of «Ukrzaliznytsya» (Table 3), on the
contrary, show an increase in the industry de-
pending on external sources of credit. In addi-
tion, the net increase in cash of «Ukrzaliznyt-
sya» in 2012 was –2115 million UAH (com-
pared to 2011 +1317 million UAH), the ratio
between the amount of the repayment of loans
and the amount of interest income from interest-
bearing loans amounted to 0,931 (in 2011 year –
0,821).1
Thus, the coefficients describing the fi-
nancial condition of railway transport of
Ukraine do not reflect the real state of the
finance industry. In addition, the current trend
for railway transport is very dangerous because
it affects not only the current financial condi-
tion, but also has long-term negative effects (de-
crease in investments, primarily in the rolling
stock and modernization of railway infrastruc-
ture). Thus, already in 2013 attracting of loans
was carried out at a price above the market aver-
age. This indicates an increase in the riskiness of
investing in the industry and is recognized as an
1 Calculations based on official data of «Ukr-
zaliznytsya» [3].
–––––––––––––––––––––––––– Економіка промисловості Economy of Industry ––––––––––––––––––––––––––
78 ISSN 1562-109X
2014, № 1 (65)
Table 3
Dynamics of formation of financial resources of railway transport,
% of the previous year (according to the financial statements of «Ukrzaliznytsya»)
Indicator 2009 2010 2011 2012
Net profit 193,1 129,9 56,3
Long-term bank loans 132,2 55,7 144,6 99,7
Short-term bank loans 148,0 168,9 117,8 97,8
Return borrowed funds 58,5 129,8 181,9 82,9
Decrease / increase in liabilities 153,5 148,3 107,0 98,5
opportunity to attract loans,1 and their price,2
that in the I half of 2013 it resulted in a reduc-
tion of financial income by 62.9%, while finan-
cial expenses by 7.5% compared with the same
period in 2012.
During the first half of 2013 the growth
rate of long-term liabilities amounted to railway
transport 134.3%, while the short-term –
70,6%.3 При In this case for the purchase of
fixed assets was spent only 53.2% of the amount
borrowed long-term interest-bearing borrow-
ings. In general, the cost of updating the fixed
assets industry decreased by 57.1%. Decline in
investment activity in the sector is not surprising
and expected after significant investments un-
dertaken «Ukrzaliznytsya» in preparation for
Euro-2012.4 However, failure to use borrowed
1 In 2013 it was planned to raise funds through
the placement of Eurobonds in the amount of 1 bil-
lion EUR, were actually placed bonds worth 500
million EUR. At the same time the industry is highly
dependent on foreign loans: own funds industry can
not finance more than 33% of the required invest-
ment [22], and a sharp decline in net profit (in 2012 –
43.7%) further reduces its investment opportunities.
In 2012 there was a reduction of credit ratings
«Ukrzaliznytsya» to the level of «B- (negative)»
(from S&P) and «B- (stable)» (from Fitch) [3].
2 According to financial statements of «Ukrza-
liznytsya» growth in 2008 financial costs amounted
to railway transport 220.0%, in 2009 – 163.6%, in
2010 – 122.2%, in 2011 – 104.5 %, in 2012 –
108.7% of the previous year.
3 Calculation based on data from the report of
Ernst & Young Audit Services LLC «State Adminis-
tration of Railway Transport of Ukraine «Ukrzaliz-
nytsya»: interim condensed consolidated financial
statements as of June 30, 2013» [3].
4 «Ukrzaliznytsya» to prepare for Euro 2012
spent 18.9 billion UAH equity in the absence of bud-
getary funding. From January to September 2012,
due to distortions in capital investment cash gap be-
funds for the purchase of fixed assets (46.8%)
indicates the problems of financing operations
branch,5 which is a very alarming signal.
Existing negative trends are reflected in
the processes of generating cash flows of rail-
way transport. So, for the I half 2013 compared
with the same period in 2012 net cash generated
from operating activities decreased by 54.8%,
net cash flows used in investing activities de-
creased by 56.7%, and net cash flows re-
ceived/used in financing activities increased by
2.2 times from the proceeds of loans, bond
placement and reduction of the cost of repay-
ment obligations.
Analysis of the factors that could deter-
mine the future of railway transport in Ukraine
(the state and prospects of development of the
infrastructure sector, maintaining demand and
efficiency of freight transport demand satisfac-
tion and efficiency of passenger traffic, the im-
plementation of the reform process of railway
transport of Ukraine) [20, 24] showed that under
the conditions of non-stationary institutional
environment as a result of mismanagement of
finances and, as a consequence, reduce the fi-
nancial sustainability of the industry, there is a
real danger of phasing freight and passenger
tween revenues and expenditures for transportation
operating activities amounted to 2.2 billion UAH.
Also provided at the beginning of the year indexation
of tariffs did not take place – «Ukrzaliznytsya» sus-
tained a loss of about 2 billion UAH. [23].
5 The report of Ernst&Young Audit Services
LLC «State Administration of Railway Transport of
Ukraine –: consolidated financial statements as of
December 31, 2012, 2011, 2010 years» notes that as
one of the sources of additional funds to finance
working capital deficit industry guidance of «Ukrza-
liznytsya» is considered a reduction of capital in-
vestments «if necessary, without creating unfavora-
ble conditions for operations…» [3].
–––––––––––––––––––––– Економіка промисловості Экономика промышленности ––––––––––––––––––––––
ISSN 1562-109X 79
2014, № 1 (65)
traffic, which would be disastrous not only for
railway transport, but also for the national econ-
omy as a whole. Therefore, to prevent the fur-
ther accumulation of negative trends in the in-
dustrial, financial and economic activity of the
industry seem to be necessary to develop and
implement a system of severe constraints go-
verning the processes of generating cash flows
of the railway transport of Ukraine.
Development of a system of constraints to
ensure financial sustainability in the planning
and the current period should be based on two
conditions [25]: 1) the current (available) work-
ing capital needs exceed it for each time period,
2) own working capital should not be below ze-
ro.
Then, taking into account these two con-
ditions, such a system would include restrictions
five basic requirements.
1. Priority to financing of the conti-
nuously operation. Financial highlights of rail-
way transport are formed as a result of ordinary
operations for freight and passengers, so to save
the source of receipt of funds is a necessary
priority to ensure sufficient financial resources
of continuous operations industry, and its gra-
dual development through the implementation of
the necessary investment and innovation.
The need to introduce this restriction fol-
lows from the peculiarities generating of the
financial flows in railway transport of Ukraine:
the possibility of implementation of operational
activity in the future depends directly on finan-
cial results received in the current period. In ad-
dition, the potential development of the industry
(the possibility of capital investments in rolling
stock and infrastructure improvements) as de-
fined by the financial result. Then, this restric-
tion can be represented by the following rela-
tionship:
,i f d oR t R t FR t R t for t , (1)
where ,o iR t R t , fR t – the total cost
of the industry in the period t 1,t T ,
associated with the operating, investing
and financing activities, respectively;
1 , 1 ,d o iFR t f R t R t t – the ava-
ilable financial resources of the industry.
2. Balanced amounts of positive and
negative cash flows of the railway transport.
The implementation of this restriction involves
the generation of negative cash flows, depending
on the amount of positives ones for each period
t . The deficit and surplus of the total cash flow
will have a negative financial impact on the in-
dustry [26, 27]. Thus, the generation of the total
cash flow deficit will reduce the level of liquidi-
ty and solvency of the industry, resulting in in-
crease in accounts receivable and payable, in-
crease in the share of overdue financial credits
received, increase in the duration of the financial
cycle and, consequently, reduction of the profit-
ability of equity capital, and assets of the rail-
way transport.
Total surplus of the cash flow will also
have negative consequences associated with a
decrease in the real value of temporarily not
used funds, as well as the loss of the potential
revenue from the unused portion of cash assets,
which also affect the efficiency of their use, as
well as equity industry.
Then to balance the positive and negative
cash flows of railway transport and prevent the
appearance of deficit or surplus in each period t
it is necessary to adhere to the following rela-
tionship:
1,
о i f
p p p
о i f
o o o
DP t DP t DP t
DP t DP t DP t
(2)
where , ,о i f
p p pDP t DP t DP t – a positive
cash flow from operating, investing and financ-
ing activities for the period t , respectively;
, ,о i f
o o oDP t DP t DP t – a negative cash
flow from operating, investing and financing
activities in the period t .
3. Synchronization of the generation of
operational, financial and investment cash
flows. Implementation of this restriction in-
volves setting a rigid relationship between cash
inflow (positive cash flow) and their expenditure
(negative cash flow) over time. Total cash flow
timing circuit can be described by the following
equation:
,
DС
k p p
DС DС
d р opt
ОDС t ОDС t S t ОDС t
P t P t ОDС t
(3)
where ,p kОDС t ОDС t – the cash balance
at the beginning and end of the period t , respec-
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80 ISSN 1562-109X
2014, № 1 (65)
tively; DСS t – cash balances in the period t ;
,DС DС
d рР t Р t – forecast of the revenue and
expenditure of funds in the period t ;
optОDС t – the optimal balance of funds in
the period t .
Since timing of cash flow of the railway
transport should provide reciprocal linking flows
related to operating, investing and financing ac-
tivities, the restriction (3) can be represented as
follows:
[
] [
] ,
ОDС IDС
k p
FDС ОDС ОDС
p d р
IDС IDС
d р
FDС FDС
d р opt
ОDС t ОDС t P t P t
P t ОDС t P t P t
P t P t
P t P t ОDС t
(4)
where , ,ОDС IDС FDСP t P t P t – the fore-
cast cash flows from operating, investing and
financing activities in the period t , respectively;
, , , , ,ОDС ОDС IDС IDС FDС
d р d р dP t P t P t P t P t
FDС
рP t – the forecast income and expendi-
ture of funds related to the operating, investing
and financing activities in the period t .
The use of the expression (4) as the re-
striction will provide the necessary and suffi-
cient level of solvency of the railway transport
in each period t 1,t T and, thus, reduce the
severity of the two issues specific to its financial
and economic activities:
1) the necessity of withholding of the
funds from the market to maintain the optimal
balance of funds to compensate for arrhythmia
of cash flows in the industry over the period t ,
arising as a result of pronounced seasonality of
its activities. The positive effect of this is the
ability to reorient the released resources to
finance investment;
2) increase in the investment attractive-
ness of investment in the railway transport, as
well as the level of confidence of financial insti-
tutions, which results could increase the flow of
external financial resources to the development
of the industry.
4. Maintenance of the optimal cash bal-
ance as a reserve for sustainable financial
position of railway transport.
Cash as a type of the working capital is
characterized by three main features, determin-
ing the need to maintain an optimal (necessary
and sufficient) its balance as the reserve of en-
suring of as a stable financial state of the indus-
try [14]:
1) routine: they can be used to pay off
current liabilities, resulting in a gap in time be-
tween the incoming and outgoing cash flows
and, consequently, the need for constant accu-
mulation of surplus funds in the current account;
2) caution: railway transport is characte-
rized by a pronounced seasonality, as reflected
in the intensity of the generation of operating,
investing and financing cash flows. In this sea-
sonal peaks of various cash flow of the industry
is not the same: the operating cash flow has its
generation peak in June-August and January
(increase in freight and passenger turnover), in-
vestment – in April-May and September-
October (holding of planning and renewal re-
pairs of the infrastructure of the sector, as well
as its investing in development), financial – in
June and December (settlements on external fi-
nancial liabilities). Consequently, there is a need
for creating a safety stock of cash to cover the
gap between expected income and possible costs
in the each period t , as well as for contingency
fees, which will aim to prevent the reduction of
financial stability and solvency of the industry;
3) speculation: the cash reserve is needed
because there is always a chance of causing un-
expected investment to generate an additional
revenue (increase in operating cash flow), and
for the elimination of emergency situations that
require certain costs (increase in negative oper-
ating or investment cash flow).
In the literature on financial management
in order to determine the optimal cash balance is
proposed to use of models of Baumol-Tobin,
Miller-Orr, Stone et al. [10, 28-31, etc.]. How-
ever, the assumptions of these models do not
meet the characteristics of the operation of the
railway transport in Ukraine and do not allow
displaying a specific of generation of operating,
investing and financing of cash flows, so their
use is inefficient.
In addition, the professionals involved in
financial management, note that the decrease in
cash below by 10% of the amount of working
capital is a "wake-up call" for the corporation
[32, p. 28, etc.], as it shows a decrease in its
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ISSN 1562-109X 81
2014, № 1 (65)
ability to pay and, as a consequence, financial
sustainability, and therefore should not be al-
lowed to reduce the balance of funds to this lev-
el. At the corporation «Amtrak»1 minimum cash
balance is maintained in the amount of about $
200 million to meet the operational requirements
[33]. However, a rigid fixation of the fund bal-
ance for the railway transport of Ukraine also
appears to be ineffective, because at different
times different financing needs that should be
taken into account in determining it.
Then taking into account the comments
the optimal cash balance as a reserve for sus-
tainable financial position of the railway trans-
port should be planned according to the follow-
ing equation:
max min
0,1 ,
optDС t DС t ОDС t
OA t
(5)
where max min,DС t DС t – the forecast of
maximum and minimum need in cash in the pe-
riod t , respectively; OA t – the value of work-
ing capital in the period t .
The performance of the restriction (5) will
not allow on the one hand, cash shortages as a
result of arrhythmia of generating cash flow of
railway transport and maintain the solvency and
creditworthiness at a high level, and, on the oth-
er hand, the excessive costs of lost opportunities
due to subsidence of money on the account.
5. Providing the liquidity of cash flow
(liquidity cash flow, LCF).
Liquidity cash flow is one of the characte-
ristics of the financial sustainability of the enter-
prise, showing the changes in net credit position
of the company within a certain period (month,
quarter). Liquid cash flow is closely linked to
the concept of financial leverage, which charac-
terizes the extent to which the activities of the
company can be improved through bank loans.
Cash flow liquidity test for each period t
0 1;t t t can be represented as expressions
1 National railway passenger transport corpora-
tion «Amtrak» (The National Railroad Passenger Cor-
poration «Amtrak») is the largest company engaged in
passenger traffic in the United States focused on the
implementation of intercity passenger rail.
1 0
1 1 1
0 0 0 0,
д
д
LCF t LCF t LCF t
К t CL t CASH t
К t CL t CASH t
(6)
where 0 1,д дК t K t – the long-term credits
and loans at the beginning and end of the period
t , respectively; 0 1,CL t CL t – short-term
borrowings; 0 1,CASH t CASH t – cash funds
on the settlement and currency accounts.
Limitation (6) characterizes the possibility
of timely payment of obligations to foreign cred-
itors, so adding it to the model of financial plan-
ning in railway transport will allow:
1) to prevent the generation of a negative
total cash flow in the industry, which will have a
positive impact on the attractiveness of invest-
ments in its development and, consequently, the
intensity of investment in infrastructure renewal
and rolling stock;
2) timely detection of symptoms of the
crisis in the financial activities sector, which is
extremely important in a non-stationary and dy-
namic environment, and the increased uncertain-
ty associated with the process of reforming of
the railway transport in Ukraine.
Conclusions. Thus, due to the difficult fi-
nancial situation of railway transport of Ukraine,
there is an objective need for the formation of
severe restrictions managing its financial assets
to improve their effectiveness in the short and
long term. Implementation of the proposed sys-
tem of constraints will contribute to a) improve
the operational management of cash flows from
a position of balance income and expenditure of
funds, and b) increase the liquidity of the bal-
ance of the industry, and c) increase the invest-
ment attractiveness of the railway transport of
Ukraine for financial institutions that will not
only accelerate the renewal of a non-negotiable
assets, but lower financial costs, and d) the re-
lease of funds from the operational turnover for
capital investment in the development of the
industry.
Maintaining the financial sustainability of
railway transport will not only contribute to its
effective development, but also to overcome the
negative trends and accelerated development of
leading industries of the national economy, the
implementation of neo-industrial variants of the
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82 ISSN 1562-109X
2014, № 1 (65)
national industry, «as the best at the present
stage... » [34, p. 104], the creation of infrastruc-
tural conditions for the development of trade and
economic relations of Ukraine with the countries
of the Customs Union and the EU, restore and
strengthen the cooperative ties between the in-
dustry-leading domestic and foreign enterprises,
etc.
To improve the management of the finan-
cial condition and financial sustainability of
railway transport it is necessary to bring regula-
tory framework governing the financial man-
agement of railway transport into line with mod-
ern requirements;
develop a methodology for assessing the
financial position and financial stability of the
state for structural units, and the industry as a
whole taking into account their operational and
financial performance;
implement the necessary changes in the
organization of the financial work as in subdivi-
sions and «Ukrzaliznytsya» in general;
introduce a system of financial planning,
including short-term, long-term and strategic
planning to ensure sufficient financial resources
targeted progressive development of industry in
the context of non-stationary institutional envi-
ronment;
develop a system for monitoring produc-
tion, financial and economic activities through
the application of modern information technolo-
gy.
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