Geographical Segmenentation Of Products

Published Date: 02 Nov 2017

Introduction

In the financial economics the capital considered as an essential tool for business growth. Any plan that involve expansion, capacity enhancement, launching of new product, balancing and modernizing and restricting (BMR) or the technological advancement of a business, mostly involve substantial financing requirements. In addition to the production business, capital acts as an essential requirement for creating and maintaining the proper environment for offering certain services. Inadequate capital level confines the business managers from taking appropriate and timely management decisions about inventory building, expansion plans and BMRs. Hence the development and growth of any business, whether it is a small proprietorship, a company, or a large joint stock corporation, largely depend on its capital financing.

The capital structure the firm decides to acquire is of strategically important: Being cognizant of importance of capital for their businesses, companies often carefully plan the raising of funds from different sources. Some firms prefer debts where as other have a choice for equity financing. A lot of funding sources are available in the market for business these days; they may be categorized in different ways, for instance, internal and external sources, debt or equity or short duration or long duration funding sources. The capital structure of the firm decides to acquire strategic importance; a number of factors are to be considered in choosing appropriate source of capital. First, it depends on the funding requirement; how much funding is to be required? Some sources of capital are made to raise large sum of money where as others can be used to drawdown a small amounts. For a long term expansion project, financing can be obtained from equity or from long term loans, but using these sources for short term liquidity requirements will not be an appropriate decision.

Second, urgency of funds is another important criterion that determine the source of capital financing, for example if a firm have sufficient time before the actual need of capital it will take all possible measures to secure funds that are cheaper and have favorable terms, in contrast in case any immediate need the firm will have to sacrifice some aspects of ideal funding.

Third, cost of funds is another prime characteristic that companies account for in defining the source of capital. Usually different costs are associated with different capital sources .While considering all other factors, a cheaper source of capital is desirable for a company’s point of view.

Depending on the specific need of a firm a lot of funding sources are available in the market for business these days; they may be categorized in different ways, for instance, internal and external sources, debt or equity or short duration or long duration funding sources

A detailed discussion on each of the funding sources of capital will be presented with reference to a joint stock company listed in London Stock Exchange in the following sections.

Case Study: EVRAZ Plc

Prior to discuss the definition and other aspects of capital sources a firm can have, it would be appropriate to introduce the case study of our preferred company EVRAZ Plc listed on London stock exchange since 1990s. We preferred EVRAZ due to its leading market position in World’s steel, iron and mining industry. A brief analysis of the company’s production and operation will assist in the analyses of its different funding sources made it possible to attained distinguished position among its peers.

EVRAZ: What is it mainly about…….

EVRAZ Plc is a joint stock company that operates in the mining and vanadium business. The company involves in the mining, manufacturing and sale of steel and iron products. The business is spread across different countries for instance in Russia, Ukraine, the United States of America, Canada, the Czech Republic, Italy and South Africa. According to the company’s information sources, EVRAZ is among the top 20 steel producers in the world based on crude steel production, In 2012 it produced 15.9 million tones crude steel in one year.

EVRAZ Plc: Geographical Segmenentation of Products

Pipes

Russia and Other Countries

North and South America

Europe

North America

Russia

Can be provided to other countries

South – East Asia

Limestone

Coal

Iron Ore

Can be provided to other countries

South African Republic

North and South America

Russia

Can be provided to other countries

North and South America

Russia

North and South America

Vanadium Products

Raw Material

Industrial Products

Construction Products

Railway Products

Table 1: The Historical Record of AVRAZ's Acquisitions

Year

Physical Acquisition

Strategic Internal Developments

2013

Indirect controlling interest in Raspadskaya

 

2012

 

Launches new five-pillar strategy based on: Health, Safety and the Environment; Human Capital; Customer Focus; the EVRAZ Business System; and Business Growth

2011

 

Achieves premium listing on the London Stock Exchange in November 2011.

2009

Wins the tender to develop the Mezhegey coal deposit in the Republic of Tyva (Russia)

Employee headcount reaches 110,000 worldwide

Acquisition of Inprom, a Russian steel distribution network.

 

 

 

 

2008

IPSCO’s plate and tubular business, located in Canada

 

 

 

 

2007

Acquires a number of Ukrainian assets, including – Dnepropetrovsk Iron and Steel Works, Sukha Balka Iron Ore Mining and Processing Complex, Dneprokoks and Bagleykoks. Acquisition of Yuzhkuzbassugol, a vertically integrated group that is one of the largest coking coal producers in Russia

 

Acquisition of a stake in Highveld Steel and Vanadium Corporation, South Africa and

 

Acquisition Nikom, a ferrovanadium producer located in the Czech Republic

 

Acquisition of Yuzhkuzbassugol, a vertically integrated group that is one of the largest coking coal producers in Russia.

 

 

 

 

 

 

 

 

Acquisition of Oregon Steel Mills.

 

2006

Acquires 73% stake in Strategic Minerals Corporate, USA, one of the world’s leading producers of vanadium alloys and chemicals for the steel, chemical and titanium industries.

 

2005

Acquires Palini & Bertoli in Italy

EVRAZ Group S.A.’s Global Depositary Receipts (GDR) begin trading on the London Stock Exchange.

Acquisition of Vitkovice Steel, the Czech Republic’s largest platemaker

2004

Acquisition of Kachkanarsky Ore Mining and Processing Plant (EVRAZ KGOK)

 

Evrazruda Iron Ore Processing Complex

 

 

 

 

2003

Acquisition of Novokuznetsk Iron and Steel Plant (currently part of EVRAZ ZSMK)

 

Acquisition of Nakhodka Commercial Sea Port (EVRAZ NMTP).

 

2002

Acquisition of Vysokogorsky Ore Mining and Processing Plant (EVRAZ VGOK).

 

2001

Acquisition of Nizhny Tagil Iron and Steel Plant (EVRAZ NTMK)

 

Acquires West Siberian Iron and Steel Plant. (currently part of EVRAZ ZSMK)

 

1992

A group of Russian scientists and engineers establishes EvrazMetall, a company specializing in trading steel products and supplying raw materials and equipment to Russian steel mills. EVRAZ begins its evolution.

Source: www.evraz.com

Capital Financing at EVRAZ

As shown in the Table 1, the EVRAZ underwent a number of mergers and acquisition since its inception in 1992. The company utilized various capital financing sources for a variety of reasons. For instance, 1)acquiring new plants, mining sites and companies in different geographical segments, 2)for new machinery or technological shift , 3) for the development of new products, and last but not the least; 4)the construction of a new sites, commercial buildings or any other infrastructure.

Debt, equity, retained earnings, creditors, lease financing all are the different capital sources employed by EVRAZ to generate cash flow for above mentioned operations. These capital financings may be classified as Internal and External, Short-term and Long-term or Equity and Debt. For our purpose of analysis we will defined these sources under the broader regime of internal and external source of capital financing. Both of these sources can be further categorized in different sub heads. A detailed explanation of each of the capital source with the perspective of EVRAZ is discussed in the following section; the discussion would cover the main definition, pros and cons of the specific capital structure and general cost of financing associated with it.

Internal Sources of Funding

These are the funds that the organization can generate quickly from its own resources. Most of the time organizations meet their day to day activities with these sources of funding. Internal sources of funding are considered as less expansive and quickly materialize in case of urgency. With respect to EVRAZ, following different sources are employed where the company generates the capital from its internal operations.

Retained earnings

Retained Earnings = Initial Retained Earnings + Net Income – Dividends

Definition: According to Meigs & Meigs retained earnings are those parts of Profits generated by any organization which are not distributed to stockholders in the form of dividends rather organization reinvested the amount in the business or kept for building the strategic reserves for any specific objectives.

Merits:

Demerits:

Case of EVRAZ Plc

Working capital

Definition: It is simply Current Assets – Current liabilities. A business must have enough resources to pay their current liabilities from their current assets otherwise it would be a situation of chaos within the company as well as the reputation of the company will be at stake.

There are two concepts of working capital. Quantitative and qualitative. Some people also defines two concepts, gross and net weight of the concept of the concept. The amount of working capital based on the concept of quantitative general working capital, which is what we call capital? Smith1 called "working capital" assets are considered the concept of total capital.

Qualitative insight, insight into the sources of equity financing. In accordance with the concept of the quality of the amount of working capital is current liabilities exceeded its current assets. "LJ Guthmann defined working capital as" long-term funding, treasury operations, part of the assets "

Current assets divided by current liabilities exceeded known as the "net working capital." The theory of net working capital assets will continue to pay the sum of all current liabilities. These two concepts of working capital has its own point value. "If our goal is to measure the size and extent of the use of assets, the total useful concept, while assessing the liquidity of the" net "concept has become very important and useful.

In order to study the value of working capital, which is described below, it is necessary to understand its importance, current assets and liabilities.

Continue to pay all the obligations of the amount of current assets to current point of the critical nature of his concept of capital, it is known as the excess of current assets on the concept of "divided by current liabilities Net working capital Net working capital" means . "The goal is for the assets on the size and scope of a single measure, the whole concept is very useful, and the promise of net liquidity rating is the best target.

Might explain the importance of science, it is necessary to understand the importance of current assets and current liabilities.

Liquid assets - at fair value through profit or loss of intellectual property and properly after the reporting period, in general, of its assets in short-term operation 12 of these types of assets in the months short lifespan. (), With two important features, short life, (ii) the assets quickly be converted to other forms of cash and cash equivalents, debt from 30 to 60 days long can be held idle twelve weeks, 30 photos that can accommodate from 101.

The responsibility of the seller (company) creditors can make a purchase electricity - Fitzgerald, cash and cash and other assets expected to be in the ordinary course of business during the year or the company's normal operating cycle, the definition of current assets, current liabilities, You can get more credit information. Will be displayed in your account because this responsibility is also known as the balance sheet filed by a creditor to pay.

This period is expected to be generally known as short-term debt, debt, debt pay. It can be defined as "reasonably expected to be liquidated obligations, you will use existing resources classified as Current Assets Other Current Assets Other Current Liabilities, or the creation of form."

It is the natural circulation of liquidity - working capital is also known as the capital of existing liquidity or capital, and short-term liquidity and flow. "

While examining the last two years (2011, 2012) audited financials of the company, cash flows shows the following trend in working capital.

US $ million

Items

2012

2011

Change

Relative Change

Cash flows from operating activities before change in working capital.

1,733

2,528

(795)

(31.4)%

Change in Working Capital

410

119

291

244.5%

According to the above table, we observed the 244.5% change in the working capital that means the liquidity value of the company has increased from 119m to 410m during a year.

The increase in working capital refers to a positive change sometimes because the potential to meet the current liabilities of company is strengthened but on the contrary if the change is enormous and without a valid reason given by firm, is always an alarming situation. Simply because, company is not re-investing in business to enhance their capacity or revenues. The Current Ratio is on higher side which is good for paying off the liabilities but on the other hand, it restricts the company from taking interest in expanding its business.

The situation of Current assets vs Current Liabilities is given below:

Current Assets

2012

2011

2010

Inventories

1,978

2,188

2,070

Trade and other receivables

895

971

1,213

Prepayments

143

176

192

Loans Receivable

19

44

1

Receivables from related parties

12

8

80

Income tax receivable

59

83

54

Other taxes recoverable

329

412

353

Other current financial assets

712

57

52

Cash and Equivalents

1,320

801

683

Other current assets

930

9

2

Total Current Assets

6,397

4,749

4,700

Current Liabilities

Trade and other payables

1,412

1,460

1,173

Advances from customers

157

154

205

Short Term loans and current portion of long term loans

1,783

613

714

Payable related to parties

247

98

217

Income tax payable

48

92

78

Other tax payable

195

188

180

Current portion of finance lease liabilities

2

13

19

Provisions

32

53

54

Amounts payable under put option for shares of subsidiaries

-

9

6

Dividends payable by the Group’s subsidiaries to non-controlling shareholders

8

9

13

Other Current Liabilities

478

-

-

Total Current Liabilities

4,372

2,689

2,659

Sale of fixed assets

Definition

Merits:

Demerits:

Case of EVRAZ Plc

External Sources of Funding

Creditors

Definition

Merits:

Demerits:

Case of EVRAZ Plc

Loans

Short term Loans

Definition

Merits:

Demerits:

Case of EVRAZ Plc

Long term Loans

Definition

Merits:

Demerits:

Case of EVRAZ Plc

Finance Lease

Definition

Merits:

Demerits:

Case of EVRAZ Plc

Shares

Different kinds

Definition

Merits:

Demerits:

Case of EVRAZ Plc