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Evaluation of company's trade credit policy efficiency

Student: Fateev Boris

Supervisor: Elena Rogova

Faculty: Faculty of Economics

Educational Programme: Bachelor

Year of Graduation: 2014

<p>The theme of this graduation thesis is &laquo;evaluation of trade credit policy efficiency&raquo;. It contains 13 images and 10 tables. The total extent of thesis is 47 pages. To prepare the thesis 30 various sources were used. Key words: working capital, accounts receivables, trade-credit policy, trade credit, financial cycle.</p><p>An aspiration of commercial companies to increase sales without essential changes in production often leads to decision of trade with delay of payment.&nbsp; Delays in payments are called trade credit. A policy, connected to trade credit management is called trade-credit policy. Large dimension of trade credits could lead to essential increase in sales, but also a high risk of accounts receivables delinquency. Consequently, the main dilemma of trade credit policy is the balance between profitability and risk. It&#39;s an up-to-date issue for Russian national market because there is a lack of usage of trade credits on this market. In most cases salesmen choose an absolute stability in the prejudice of increase of profitability by avoiding trade credits at all.</p><p>The goal of this thesis is the evaluation of trade-credit policy&#39;s efficiency for &quot;Heineken Breweries&quot; Ltd. To evaluate that we use the trade-credit policy of the company and study financial and economic circumstances of its application.</p><p>During examination of relevant literature we revealed the fact, that the theme is better examined by foreign scientists than Russian. The most of theoretical and empirical &nbsp;researches belong to foreign economists, and a general mechanism of trade-credit policy creation for Russian market isn&#39;t completely studied.</p><p>The thesis has a mark of scientific novelty, which is a revelation of trade-credit policy creation mechanism for Russian market. Also it contains mechanism&#39;s application for specific Russian firm.</p><p>Practical part of the thesis includes conclusion about &quot;Heineken Breweries&quot; Ltd. trade credit policy efficiency, and could be used by its management to develop relations with consumers as well as by any other Russian companies after relevant application of constructed pattern.</p><p>In the first part of the thesis &quot;Theoretical basis of trade-credit policy creation&quot; we examined indexes, which in general describe trade-credit policy. Possible interconnections between these indexes were described. The list of factors which could influence trade credit policy was constructed and possible effects of trade-credit policy change for key financial indexes were predicted.</p><p>In the second part of the thesis &quot;Trade-credit policy of &quot;Heineken Breweries&quot; Ltd. analysis&quot; there is a description of data used in the thesis, examination of interconnection between potentially affluent factors and trade credit policy and a construction of normal trade credit policy determination pattern. Also the second part includes comparison of the company&#39;s trade credit policy with Russian norms of cooperation.</p><p>As a result of research 2 factors affecting trade credit policy of Russian companies were revealed - &nbsp;the profitability to current ratio proportion and the average growth of assets for last 3 years.</p><p>Basing on constructed patterns the optimal level of accounts receivables turnover was predicted for &quot;Heineken Breweries&quot; Ltd. The predicted turnover is 57 days and the real turnover is 56 days. After matching these 2 indexes with 95% confidential interval we conclude, that they are equal. That means that the company&#39;s trade credit policy isn&#39;t deranged for Russian market. In addition to high sales for its market segment that leads to the conclusion that the company&#39;s trade credit policy is efficient and there is no necessity to change it.</p>

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