Features of Financial Policy Development by Russian Companies in Today's Conditions

Features of Financial Policy Development by Russian Companies in Today's Conditions

Igor Keri (Plekhanov Russian University of Economics, Russia), Elena Gromova (Plekhanov Russian University of Economics, Russia) and Nadezhda Sinelschikova (Plekhanov Russian University of Economics, Russia)
Copyright: © 2019 |Pages: 19
DOI: 10.4018/978-1-5225-7760-7.ch004

Abstract

The chapter includes the proposals regarding the development of rational financial policies by Russian companies in today's conditions. The authors have identified the following areas of difficulties: sales; deficit of financial resources for investment in development and distribution; instability and unpredictability of external conditions. Changes in price policies, optimization of components and volume of trade account receivables are some of the suggested ways of how to improve company's sales. The solution to the lack of financial resources for company's investment development can be found through selecting more effective forms of financing. The authors also point out the limitations in investment activities' financing under the conditions of current import substitution while suggesting author's own and original composition of indicators for innovation activity. The study leads the readers to the conclusion that the state today faces the challenge of creating favorable conditions for strengthening the financial stability of companies.
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Introduction

Implementation of a company's financial policy in practice is closely related to financial theory. At present, there is no systematic approach to the concept and formation of company's financial policy in financial theory. As a consequence, in real business practice most companies do not apply any holistic approach to the formation and implementation of financial policies, replacing it with disparate, and sometimes contradictory, managerial decisions in the field of financial management.

Categories “financial policy” and “financial management” should be highlighted here in the first place.

Financial policy is an independent concept, requiring a separate study and analysis in terms of both theory and practice.

Development and implementation of a financial policy by a company allows solving successfully its strategic and tactical tasks in comparison with the companies without a financial policy.

On a higher level, financial policy implemented by the state sets the vector for the formation of financial policies by all companies in the state (or in its specific region).

Directions of activities in the course of this research are put forward as follows:

  • To overview of the already available research & development achievements in the field of company's financial policy

  • To assess the impacts of internal and external challenges on the development of Russian companies in general

  • To identify the key areas in the development of financial policies in terms of financial constraints

The purpose of the study is to define a systematic approach to the contents of a company's financial policy for practical use in creating an effective financial management system.

The objectives of this study, taking into account the directions above, are as follows:

  • To determine the contents of a company's financial policy

  • To develop recommendations on pricing policy, obligations of management, policy of attracting investment resources

  • To justify potential state measures which should be aimed at creating favourable financial conditions for the development of Russian companies

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Background

Both globally and within Russian scientific community specifically, there has been a discussion as to the essence of a company's financial policy for quite a long time already. The following approaches to interpreting the scientific concept of “company’s financial policy” have been identified by now: hierarchical, ideological, elemental, normative, managerial.

The hierarchical approach covers management of an economic entity from the perspective of different levels and is relatively rare in economic literature.

German scientist H. Hinterhuber (1996) considers “financial policy of an enterprise to be an element of strategic planning, which aims to increase the value of the enterprise through the implementation of operational and strategic plans”.

The ideological approach assumes that company's financial policy should be formed in accordance with its corporate ideology. This approach implies the establishment of company's development goals and tasks arising from them as well as the choice of methods to be used for their solution.

H. Ulrich (1990) adheres to the financial and economic model of company's policy, “the formation stages of which are the formulation of financial and economic goals, the identification of the enterprise's potential and the development of strategies for further development”.

V. V. Bocharov (2014) defines financial policy as the course, purpose, strategy, ideology of the company.

Elemental approach studies the composition of elements that reflect the direction of financial policy of an organization.

M.V. Romanovsky (2014) refers to the elements of company's financial policy as: accounting policy, credit policy, cash management policy, cost management policy, dividend policy.

A.S. Makarov (2008) examines financial policy “in terms of the types of activities of the organization: investment, supply, production, marketing, innovation, financial etc.”.

Key Terms in this Chapter

Financial Policy of a Company: Setting goals and objectives in financial management, developing an algorithm for action, choosing forms and methods for its implementation.

Innovation: A new achievement in the field of technologies or management, intended for use in the operating, investment or financial activities of a company.

Investment Resources of a Company: All types of monetary and other assets of a company used for investment activities. The main sources of investment resources include: profit, depreciation, IPO, long-term loans of banks, issuance of long-term bonds, leasing.

Trade Receivables Accounts: Debt in favour of the company represented by obligations of legal entities and individuals in relation to this company. The main kinds of trade receivables accounts are: for goods, works and services; on bills received; on payments to the budget.

Investment Policy of a Company: Selection and implementation of effective forms of investment that ensure the achievement of company's goals.

Trade Payables Accounts: Short-term liabilities of a company in relation to other legal entities and individuals. The main types of trade payables accounts are: suppliers and contractors; company’s personnel; to state off-budget funds; debts on taxes, duties and other mandatory fees.

Price Policy of a Company: Set of measures for choosing a system of prices for manufactured and/or sold products (services) along with their pricing strategies and pricing methods.

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