Financial analysis of Baltyisky zavod

Baltic state technical university

Sib-BSTU

Master of business administration and engineering

Financial Accounting

Project Work:

                         «Financial analysis of Baltyisky zavod»

Written by Boikova Anna

Saint-Petersburg

2007

Content

Introduction

Financial analysis refers to an assessment of the viability, stability and profitability of a company. It is performed in the form of reports using ratios that make use of information taken from financial statements and other reports. These reports are usually presented to top management as one of their basis in making business decisions. Based on these reports, management may make very important for the business decisions: continue or discontinue its main operation or part of its business; make or purchase certain materials in the manufacture of its product; acquire or lease certain machineries and equipments in the production of its goods; issue stocks or negotiate for a bank loan to increase its working capital on so on.

This work is devoted to the financial analysis of Baltyisky zavod. When writing the work I was aimed to determine the company’s:

- Profitability - its ability to earn income and sustain growth in both short-term and long-term. A company's degree of profitability is usually based on the income statement, which reports on the company's results of operations;

- Solvency - its ability to pay its obligation to debtors and other third parties in the long-term;

- Liquidity- its ability to maintain positive cash flow, while satisfying immediate obligations; Both are based on the company's balance sheet, which indicates the financial condition of a business as of a given point in time.

- Stability - the firm's ability to remain in business in the long run, without having to sustain significant losses in the conduct of its business. Assessing a company's stability requires the use of both the income statement and the balance sheet, as well as other financial and non-financial indicators.

The objectives of my research are the following:

-         to investigate the theoretical footing and relate the methodology;

-         to tell briefly about the company and its activity;

-         to give an organizational structure of the enterprise;

-         to make the horizontal and the vertical analysis;

-         to make the financial analysis of the company’s activity by comparing different ratios.

1. Theoretical framework

Financial accounting

Accounting is a system for measuring economic activity and communicating the result of these measures to users.

The definition tells that economic data must be recorded, measured and communicated. These dimensions are key words for what accounting is. They are:

Registration is the starting point for accounting data and also the documentation of data.  The registration has to be done in a systematic way,, that means according to a plan or a system, as economic events take place. This sets limitations. Firstly, it must be possible to record the event, and secondly, the event must have a financial character. Many important events of value for the firm therefore fall outside the accounting system.

Measurement must be made according to specific rules. Some of them are quite clear and indisputable, others are open for alternatives. In many cases there are various possibilities for measurements. These must be clarified and written down as accounting policies.

Communication underlines that accounting is more than recording and producing measured figures. The final goal for accounting is to communicate the measured economic event to users.

From the above definition it can be seen that the focus is on users. This seems reasonable. A great challenge is to present accounting figures so the many different kinds of users understand the message. Later on in the chapter we will discuss this dimension.

Accounting is part of business economics. Historically business economics started with accounting. Accounting still plays a central role within business economics, and a teaching field in accounting corresponds to economics.

Accounting is not bookkeeping. The latter is technique although good and

logical reasoning lays behind this technique.

Traditionally accounting is divided into two: accounting addressed to internal parties and accounting for use outside the firm. Int4rnal and external accounting are good characteristics of the two, although the more common terminology is financial accounting and management accounting.

Financial accounting is the branch of accountancy concerned with the preparation of financial statements for decision makers, such as stockholders, suppliers, banks, government agencies, owners, and other stakeholders. The fundamental need for financial accounting is to reduce principal-agent problem by measuring and monitoring agents' performance and reporting the results to interested users.

Financial accounting is used to prepare accounting information for people outside the organization or not involved in the day to day running of the company. Managerial accounting provides accounting information to help managers make decisions to manage the business.

Financial accountancy is governed by both local and international accounting standards.

Financial analysis

Financial accounting analysis is the systematic use of accounting data in order to investigate the financial situation of the firm. Both the management of the firm and groups outside the firm are interested in a systematic use of accounting data. Such analyses are made for many purposes, and they can be either of a continuing character or a one-time phenomenon.

The quality of the financial analyses can never be better than the quality of the accounting data themselves. First of all it is important to remember the basic

principles of financial accounting, especially the historical cost principle. It is also important to remember that the measurements of accounting events are not always objective. In this connection it is reasonable to be aware of the possibility of manipulation of accounting data, and that great creativity can be involved. Finally, it is important to remember that very often a user of accounting data can be in doubt about the message and thus also the conclusions to draw from analyses.

Accounting data are produced to be used. Usually, that means comparison in one way or another. It is by comparison that accounting data can tell the economic story and explain it. It is by comparison that signals are found, positive as well as negative.

2. Baltyisky zavod. Company’s profile

Baltiysky Zavod holds a monopoly among the Russian shipyards in the construction of surface ships and ships with a nuclear power plant. From the beginning the yard was oriented towards building ships for the Russian Navy.

The Crimean War came to the end. Russian sailing vessels could not resist the enemy's steamships. Russia had no production facilities for creation of a steam war fleet, metallurgic industry had not yet existed. Modern self-propelled ships equipped with rifling guns and firm armour were called for urgently. On 26th May 1856 Matvej Egorovich Karr, merchant of the first class, and Mark Lvovich Macpherson, naval architect, established a new enterprise named Baltiysky foundry, engineering and building works of Karr and Macpherson.

 Since its foundation BZ has been oriented for construction of naval ships as well as manufacture of machines and machinery for ships of in-house construction as well as under construction at the other shipyards of Russia. 10 steam engines of 1800 h.p. each and the same number of centrifugal pumps had been manufactured at BZ in the period 1859 to 1862. In 1862 the Russia's first metal ship, armoured gunboat "Opyt" was built there, and in 1863 there was launched the lead monitor "Latnik" the first ship of a series of that class vessels. Early in 1866 coast defence armoured vessel, frigate "Admiral Lazarev" was laid down. Two cylinder horizontal steam engine of 2,000 h.p. in capacity made from drawings of BZ's designers allowed to the frigate to run at up to 11 knots. "Admiral Lazarev" was so effective that remained on service for a full four decades. It gave a berth to armoured ship building in Russia, progress of which was crowned in 1877 by creation of heavy for those days armour clad "Petr Veliky". For a long time that armour clad was considered as the world's best vessel. All world naval achievements were embodied in her.In 20-30ies BZ built decades of submarines of different types ("D" - "Dekabrist", "Sch" - "Schuka", "K" - "Kreiserskaya" and so

on) for Baltic, Black Sea, Northern and Pacific Fleets.

In 1925 BZ began implementation of a vast program of commercial and military shipbuilding. Timber carriers of 5,500 t in displacement, merchant, passenger-cargo ships and catcher boats. Only during the first decade of commercial shipbuilding BZ constructed 32 ships. In 30-es there were built a series of destroyers "Storozhevoy", "Gnevny" (7 units) which participated in defense of polar regions, Baltic Sea and in offensive operations during the War ending. In 1938 BZ built light cruisers "Kirov" and "M.Gorky" of 10,000 t in displacement, 36 knots in speed which actively participated in defense and break of Leningrad's siege and other military operations of the World War II. During 100 year period (1856-1956) BZ built 115 submarines.

In the meantime marine engineering - manufacturing of steam engines, propellers, shafts, different auxiliary machinery - has been developing too. In the same period BZ had been upgrading. Succeed the old equipment came new technique and technology. During the World War II in conditions of a ferocious siege despite starvation, shelling and bombardments BZ's shipbuilders selflessly worked for the needs of the front - arranged a mass production of ammunition, repaired vessels, built minesweepers, and with other Leningrad shipbuilders arranged barges and tenders construction for the Ladoga Lifeline. Milestone in the development of BZ in 60-ies was construction of a series of tankers type "Pekin" (displacement 40,000 t) and "Sophia" (62,000 t). In 70-ies BZ started to construct heavy nuclear-powered cruisers type "Kirov": 1980 - "Admiral Ushakov"; 1984 - "Admiral Lazarev"; 1988 - "Admiral Nakhimov"; 1998 "Petr Veliky".

The vessel of this class is a unique nuclear missile tender, second to non in the world in this type of cruisers. For commercial fleet BZ built and are building cargo and passenger-cargo ships: tankers, reefers, dry-cargo ships, ro-ro ships, chemical carriers, icebreakers for polar regions, research ships, icebreakers type

"Arktika" for navigation all the year round along the Northern Sea Route. At the

present the fifth icebreaker of this series, nuclear-powered icebreaker "50 Let Pobedy", is under completion. Many ships were constructed under the orders of some companies from Great Britain, Germany, Norway, Sweden and so on. In total for 143 years BZ built 312 warships and submarines and 215 commercial ships, i.e. 500 commercial and military ships.

Baltiysky Zavod, JSC is one of the leading enterprises in the Russian shipbuilding industry. In 2006, the shipyard is celebrating its 150th anniversary. During this century-and-a-half period, the shipyard has delivered over 500 naval ships, submarines, and commercial vessels. Since the day of its foundation, the shipyard has been among the first to undertake new shipbuilding projects subsequently taken up by other yards. The shipyard built the first metal ship in Russia – armored gunboat the Opyt (1862), the first Russian submarine designed by Ivan Alexandrovsky (1866), the first armorclad Admiral Lazarev (1871), and the first naval submarine Delfin (1904). In 1920s Baltiysky Zavod was among the pioneers in the Soviet Union to begin building diesel-electric icebreakers, and in 1980s – heavy nuclear-powered missile cruisers of Project 1144 (the Orlan).

Today, as well as a century and a half ago, Baltiysky Zavod remains in the vanguard of the Russian shipbuilding industry integrating most modern, state-of-the-art technologies. The shipyard's production facilities and equipment are capable of producing modern ships that meet all necessary international requirements. Currently the Baltiysky Zavod shipyard specializes in construction of icebreakers and ice-classed vessels (with nuclear-powered propulsion, as well as conventionally powered), large commercial vessels for carrying various types of cargo, and naval ships. The company also manufactures a wide range of marine propulsion equipment and machinery for equipping ships built at the shipyard, as well as for supplying other yards. Baltiysky Zavod also manufactures heat exchanges for nuclear power plants and is a major producer of non-ferrous and

core-mould castings. One of the most promising fields of the shipyard's activity is

the construction of floating nuclear power plants. Over the recent years Baltiysky Zavod has delivered ships to customers from Russia, Germany, Holland, Portugal, Norway, Sweden, and other countries.

The construction of civil ships has become our prime goal for . Nowadays Baltiysky Zavod has established a reputation as a reliable supply source of commercial ships among owners all over the world. Chemical carriers, floating power supply units, icebreaking ships for offshore oil/gas fields support are the priority projects for the yard. Baltiysky Zavod is largely self-sufficient and currently employs over 6000 employees. It consists of the following productions: shipbuilding, marine machine building and metallurgical. Besides, an in-hose Design Center, Material Procurement, Quality Assurance and many other departments support the shipbuilding process. The yard produces ship's equipment and various mechanisms not only for its own ships under construction but for other Russian shipyards as well. BZ manufactures marine equipment and machinery: · steam engines, marine boilers and boiler units; · shafts and shaftlines (up to 24 m in length); · ship's propellers with blade diameter up to 8 m; · portholes, windows and sliding doors; · marine fittings and valves (shut-off, control, non-return for steam, water and other media); · foundry, forged and formed products; · heat-exchangers; · steam generators and other main and auxiliary ship's machinery. BZ is going on with construction of nuclear-powered icebreakers, a series of chemical tankers, a series of bulkcarrier-dry cargo ships, a series of frigates for India.

Baltiysky Zavod was traditionally oriented towards building surface warships and ships with a nuclear power plant. But nowadays Baltiysky Zavod has established a reputation as a reliable supply source of vessels among owners all over the world. Ro-Ro ships, chemical carriers, floating power supply units, icebreaking ships for offshore oil/gas fields support are the priority projects for the yard. Baltiysky Zavod produces also ship's equipment, machinery and various mechanisms not only for its own ships under construction but for other shipyards

as well.

The enterprise specializes in complex high-technology large ships, including nuclear-powered ones. In the past, these were mostly warships; nowadays, Baltiysky Zavod has a number of interesting projects to offer to the Russian and international civilian market. These are icebreaking transport ships, nuclear- and diesel-powered floating power stations, offshore supply and service ships, floating desalting plants. ”Metallgalvanoservice” is a subsidiary of Baltiysky Zavod, JSC.
With the advanced technology in hand the company performs the following work:
- hot galvanizing of metal structures;
- chemical cleaning of pipes and other items;
- all electroplating processes;
- application of polymeric powder coatings;
- manufacture of shop and storage equipment, contact wire posts (for railway) and other metal structures;
- cold stamping.
Specialists of the company have been trained in Finland.

The in-house Ship Design Center ensures the timely issuance of working design documents as well as the efficient work preparation and production support. The use of state-of-the-art design techniques provides for compliance of design work with international requirements.

The issued documentation meets the requirements projected by international classification societies, namely: Lloyds Register of Shipping, Germanischer Lloyd, Bureau Veritas, Det Norske Veritas, Russian Maritime Register of Shipping. Our designers develop the workshop, delivery and operation documents in English or German on the basis of classification drawings designed by Western design companies Moss Maritime AS, Vik-Sandvik, Rolls Royce, SRS A/S and leading Russian design bureaus.

Baltiysky Zavod manufactures a wide range of marine and power engineering products for its own vessels and for some other shipbuilding companies: propellers, shafts and shaft lines, stern tubes, rudders, rudder horns, marine fittings.

Baltiysky Zavod has a long experience in manufacturing of fixed- and controllable pitch propellers made of bronze and brass (diameter – up to 8,000 mm, weight – up to 70,000 kg) as well as propellers made of carbon and stainless steels (diameter - up to 2,500 mm, weight - up to 2,500 mm). Besides we produce bosses, servo cylinders, etc. Baltiysky Zavod produces propellers for the following types of ships: large-capacity tankers, container ships, passenger ships, all kinds of navy ships nuclear and icebreakers speed-boats, including patrol vessels

The shipyard manufactures stern tubes made of carbon, stainless and low-magnetic steels up to 1,100 mm in diameter, 11,000 mm in length, weighing up to 31,000 kg. Our products meet environmental, vibration resistance, and shock resistance requirements applicable.

Baltiysky Zavod manufactures propeller, thrust and intermediate shafts of carbon, alloy, low magnetic and stainless steels, as well as of titanium alloys. The availability of unique shafting lathes makes it possible to machine solid-forged propeller shafts up to 24,000 mm long or built-up shafts up to 33,000 mm long (diameter - up to 1,000 mm, weight – up to 50,000 kg).

Baltiysky Zavod is highly skilled in production of structures made of titanium alloys, including deep submersible vehicles (depth of submergence – down to 7 km).

Baltiysky Zavod is situated in the western part of St. Petersburg, on Vassilievsky Island, at the outlet of Greater Neva.

The enterprise is specializing in complex high-technology large ships, including nuclear-powered ones. In the past, these were mostly warships; nowadays, Baltiysky Zavod has a number of interesting projects to offer to the Russian and international civilian market. These are icebreaking transport ships, nuclear- and diesel-powered floating power stations, offshore supply and service

ships, floating desalting plants.

The enterprise has three construction slips. The 350-meter "A" slip is the biggest in Russia, allowing to launch hulls up to 100,000 tons in deadweight. Superstructure blocks can be installed afloat using the Demag 350-ton floating crane with 50 m hoisting height. Deep-draught outfitting quay is 245 m long and 15 m wide, its depth is 10 m near the bank.