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Economic Profit at Different Stages of OLC in Russian Companies

Student: Fidarov Soslan

Supervisor: Irina Ivashkovskaya

Faculty: Faculty of Economic Sciences

Educational Programme: Corporate Finance (Master)

Final Grade: 8

Year of Graduation: 2020

This work examines the economic profit of public Russian companies from 11 industries at different stages of the life cycle (OLC). To study the specific characteristics of the company and their role in creating economic profit when changing the stages of the life cycle, a case study method was used. Based on the data of PJSC “Magnit” from 2013 to 2019, the factors affecting changes in the economic profit indicator during the transition from the “growth” stage to the “maturity” stage were studied. To determine the stage of the life cycle of companies, the methodology of V. Dickinson was used, based on the analysis of three cash flows of companies. Key research findings: 1) Analyzed 108 public Russian companies from 11 industries for the relationship of economic profit and the life cycle of organizations. It was revealed that: 1) 85% of the sample companies are at the stages of "growth" and "maturity"; 2) 61% of the sample companies are characterized by instability of the value (positive / negative) of economic profit; 3) the “Utilities” and “Materials” industries are characterized by the largest number of companies with sustainable positive economic profits; 4) most companies with sustainable economic profits are at the stages of “growth” and “maturity”. 2) The classification of companies according to the level of economic profit has been developed: 5 patterns of behavior of this indicator have been identified, from which it was found that: 1) companies with a stable positive economic profit occupy only 20% of the total sample of companies 2) at the “introduction” OLC, most sample companies have predominantly negative economic profits; 3) at the “growth” stage, most companies in the sample are characterized by the volatility of economic profit; 4) at the “maturity” stage, the sample’s companies are evenly presented in 4 out of 5 patterns of economic profit identified in the work; 5) at the stages of “decline” and “shake-out”, companies predominantly had a negative economic profit. 3) A case study of PJSC “Magnit” was conducted, where the reasons for the decrease in the economic profit of the company during the transition from the “growth” stage to the “maturity” stage were studied. The factors for the decline in the above indicator are highlighted: 1) slow adaptation and response to changes in market conditions; 2) the need for active investment in new projects over a short period of time contributed to reduce in the spread of ROCE and WACC and increase of the capital employed. 4) Based on the assessment of the strategic projects of the company, a forecast is given to increase the value of the economic profit of PJSC “Magnit” in the future and to continue the positive trend of this indicator, which has begun in 2019 Keywords: organization life cycle, economic profit, factors of economic profit, emerging capital markets, food retail.

Full text (added May 31, 2020)

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