Improvement of the capital structure through the implementation of an investment project

In a market economy, the process of capital formation, the optimization of its structure, the establishment of a rational balance between various sources of financing and, in this connection, the quality of resource management become particularly important.

Relying on the research of scientists, it is necessary to emphasize the importance of the optimal structure of capital for the effective operation of the organization [1].

A sufficient level of capital helps maintain the viability of the business entity throughout the entire period of operation, preserving its liquidity, stability and solvency. The possibility of increasing investments in the economy of the country, expanding the market of goods and services depends on the size of its own funds.

Capital is a part of the financial resources advanced and invested in production for profit. Capital is one of the most widely used economic categories in financial management. It is the basis for the creation and development of the enterprise and in the process of functioning it ensures the interests of the state, owners and personnel.

Capital acts as a combination of means of production (balance asset) and as one of the factors of production. It could be:

- main capital;

- working capital;

- equity;

- borrowed capital.

The theoretical research and practice of forming the optimal structure of capital is based on the theorem of F. Modigliani and M. Miller, who argues that in an ideal economic environment, the capital structure does not affect the value of the organization, which depends only on the profitability of its activities and the risks associated with it.

The cardinal importance of taking reasoned and weighted decisions on the formation of the structure of sources of financing of investment activity is due to the multi-vector influence of this factor on the development of the company:

- with a non-optimal structure of the company's invested capital, it is necessary to pass its life cycle with higher requirements to its profitability, therefore, to establish more stringent criteria for selection of investment projects;

- if there are additional restrictions on investment opportunities, the company will not be able to be dynamical and flexible;

- imbalance in the structure of the invested capital leads to the production of agency conflicts, conflicts of interests of owners and management;

- when the share of borrowed capital is too high, the attitude towards the stakeholder company is transformed, which can begin to search for other options for cooperation, which is fraught with deterioration of economic relations, contractual conditions, a decrease in sales, a reduction in revenues, and a decrease in cash flows.

The key conceptual approaches to optimizing the structure of sources of investment financing in the economic literature are based on the analysis of the ratio of the company's own and borrowed capitals, as well as their components (profits, depreciation, issue of shares, bonds, bank loans, commercial loans, leasing and other sources).

The justification of the investment project financing strategy presupposes the choice of financing methods, the definition of the sources of investment financing and their structure. Financing could be:

The following items can be considered as methods of financing investment projects:

- self-financing;

- corporatization;

- loans;

- leasing;

- the state budget.

In some cases, financing can be mi-xed, that is, based on several methods. For example, 50% of the project is self-finan-cing, 50% due to loans [2].

Improvement of the capital structure through the implementation of an investment project can be researched on the basis of the “Zhairem Mining and Concentrating Complex” JSC. It develops iron-manganese and barite-polymetallic deposits.

Most of the iron-manganese concentrates produced by the company are exportted to near and far abroad:

- Russia;

- Kyrgyzstan;

- China.

The company is among the first three largest enterprises of the mining industry of the Karaganda region and is one of the main producers of manganese concentrate in the Republic of Kazakhstan.

The capital structure of the company is shown in the figure 1.

Figure 1. Capital structure

As an investment project for the modernization of the factory, it is proposed to introduce technologies for enriching small classes.

The operating Zhairem concentrating mill was put into operation in the 70s. In the future, the concentrator was repeatedly reconstructed.

In recent decades, due to the depletion of the reserves of non-ferrous metals and the constant decline in the quality of minerals in continental deposits, it became necessary to search for new technologies for the processing of mineral raw materials.

The site for ore dressing in heavy suspensions is intended for preliminary concentration of ore.

Laboratory studies of the ore of the Zhairem deposit (ore minutiae) indicate the possibility of preliminary obtaining dump tailings when separating ore fines in special equipment.

The main goal of enrichment of ore fines is the removal of the filling concrete from the ore, which comes from underground mining together with the ore to the factory. When the filling concrete enters the process of flotation enrichment, the efficiency of the process is sharply reduced [3].

The project provides for the creation of a new site for the enrichment of ore fines in the building of the existing factory. The creation of this site will allow the removal of filler concrete from the ore, which will significantly increase the efficiency of the flotation enrichment process, and will reduce the amount of heavy fraction in the grinding and flotation area.

The main technological operations included in the scheme of enrichment of small classes are presented in Figure 2.

Figure 2. The main technological operations

The scheme of enrichment allows allocating in a light fraction a breed with a dump content of valuable components.

The choice of process equipment is made according to the following requirements:

- ensuring the implementation of technological operations in accordance with the requirements of process parameters;

- reliability in operation during the inter-repair cycle;

- chemical resistance of equipment;

- the possibility of automation of processes.

The projected equipment (electric motors, lighting lamps, etc.) meet the requirements of energy saving and energy efficiency.

General lighting is performed by lamps with energy-saving lamps. Types of fixtures and wiring products are selected depending on environmental conditions, the power of the lamps, depending on the standards of illumination.

The growth of commodity output, in relation to the existing position, is due to an increase in the extraction of basic metals into similar concentrates.

The implementation of the project "Introduction of technology of preliminary enrichment of small classes at the concentrator" will not lead to a change in the number of operating technological personnel.

The implementation of the investment project will not have an additional negative impact on the environment.

The key risks of the project are:

- a decrease in metal prices (LME),

- an increase in operating and capital costs.

Let’s calculate the economic efficiency of the project, and also evaluate its impact on the capital of “Zhairem Mining and Concentrating Complex” JSC.

The calculation will be performed using the main indicators:

- net profit value;

- internal rate of return;

- payback period;

- efficiency of investments.

Net discounted income (NPV) is the current value of the cash flows of an investment project, taking into account the discount rate, less investment. The essence of the indicator is a comparison of the present value of future revenues from the project with investment in the project. NPV is calculated by the formula 1.

, (1)

ãäå n, t - number of time periods;

CF - Cash Flow;

r – rate.

The internal rate of return (IRR) is the interest rate at which the present value of all cash flows of the investment project (i.e. NPV) is zero. IRR is calculated by the formula 2.

, (2)

ãäå CF_t – the project's cash flows at the time;

t, n – number of time periods.

Payback period (T) is the period of time necessary to ensure that the revenues generated by investments cover investment costs. It is calculated by the formula 2.

, (3)

ãäå Ñ – invested capital;

P – profit.

The efficiency of investments (ARR) is an indicator reflecting the profitability of an investment object without discounting. The higher the ARR, the higher the attractiveness of this project for the investor. ARR is calculated by the formula 4.

, (4)

ãäå P – average annual profit;

I – amount of initial investment.

All the data necessary for the calculations are given in Table 1.

Let’s calculate the indicators using formulas 1-4 (Table 2).

Thus, having obtained the data it can be concluded that the investment project is economically feasible.

This project can be implemented only at the expense of own funds:

- net profit;

- undistributed profits.

Let’s consider the impact of this project on the capital structure of “Zhairem Mining and Concentrating Complex” Draw up a cash flow plan with two components in mind:

- income from additional marketable output that will be added to revenue;

- income from saving operating costs, which will be subtracted from the cost price.

It is planned that the net profit will remain at the disposal of the enterprise and replenish its own capital (undistributed profit) in the amount of 6418343 thousand tenge. Table 4 presents a change in the structure of capital due to the investment project.

There was an increase in equity capital by 6418343 thousand tenge or by 25%.

Thus, the investment project of modernization of the concentrator is recognized economically feasible, and the calculation shows that the capital structure has changed for the better - there is an increase in equity, which would lead to increased financial stability and independence of the enterprise from borrowed capital and liabilities.

RESOURCES

1. Uvarova K.A. Management decisions. – Moscow, 2015.

2. Ronov E. Y. Managerial Accounting. - Moscow: Prospekt, 2016.

3. Glazkov E.N. Innovations in production. - Moscow, 2015.

4. Yakir O.D. Production and modernization. Part 3 - St. Petersburg: Peter, 2015.

5. Kovalenko V.V. Capital Management. The choice of investment. - Moscow: Finance and Statistics, 2015.