Abstract:
The article examines Arkadi Khachaturian’s financial principles that underlie successful growth management of manufacturing companies. It analyzes the key challenges that businesses face during the scaling phase, particularly the shortage of cash amid growing profitability. The purpose of the study is to systematize approaches to capital management and investment activity to ensure sustainable growth. The paper proposes a financial management structure that includes working capital management, capital investment evaluation, and scenario-based financial planning. The necessity of integrating these elements into a unified strategy is substantiated. The results of the study can be applied by executives and financial directors of manufacturing enterprises to develop financial policy during the stage of active expansion, minimize liquidity risks, and increase shareholder value.
The transition to the stage of active scaling is a complex and high-risk period in the life cycle of a manufacturing enterprise. Increasing production and sales volumes requires significant financial resources. Practice shows that revenue growth does not always translate into financial stability. Quite often companies face the “growth paradox”: the faster the expansion, the more acute the cash deficit becomes. The relevance of the topic is determined by the need to form a scientific and practical approach to financial management in conditions where traditional methods lose effectiveness. Insufficient development of a financial growth strategy leads to cash gaps and loss of operational control.
The purpose of this article is to systematize and analyze Arkadi Khachaturian’s financial principles whose application contributes to sustainable growth management of a manufacturing enterprise.
The fundamental problem of scaling a manufacturing business lies in the need for advance investments in inventory and production capacity. Sales growth entails an increase in accounts receivable and inventory, which absorb cash long before payment is received from customers. This phenomenon is described by the concept of the cash conversion cycle.
In financial science, there is a model of the sustainable growth rate (Sustainable Growth Rate, SGR), which makes it possible to assess the maximum possible growth rate of a company without attracting external equity capital. The formula proposed by R. Higgins links growth with profitability and dividend policy:
SGR = ROE × (1 – d),
where ROE is return on equity, and d is the dividend payout ratio [1].
The model demonstrates that a company’s ability to achieve self-financed growth depends on the efficiency of capital utilization and the amount of reinvested profit. If actual growth rates exceed the SGR, the enterprise will face the necessity of attracting additional financing.
Controlled growth requires the implementation of a comprehensive capital management system consisting of two blocks: working capital management and investment management.
Working Capital Management
Effective working capital management is aimed at minimizing the cash conversion cycle and releasing internal resources. It includes inventory optimization through the implementation of planning systems and turnover analysis; management of accounts receivable through a clear credit policy and payment control; as well as management of accounts payable by negotiating with suppliers to increase the payment deferral period, which serves as a source of short-term financing.
Investment Policy and Capital Expenditure (CAPEX) Evaluation
Scaling production is associated with investments in fixed assets: equipment, modernization, construction. Investment decisions must be based on strict financial calculations. The fundamental evaluation methods are discounted cash flow (DCF) analysis, the calculation of net present value (NPV), and the internal rate of return (IRR). A project is accepted for implementation if the NPV value is positive, which means that the expected return exceeds the cost of capital [2]. Systematic application of these approaches allows selecting projects that create shareholder value.
Financial Planning and Scenario Modeling
A growth strategy must be supported by a detailed financial plan. At the scaling stage, static budgets are not sufficient. It is necessary to develop a dynamic financial model integrating the income and expense budgets, cash flow statements, and a forecast balance sheet. Such a model makes it possible to assess the impact of operational decisions on the financial condition.
The central element of the model is scenario analysis. Management must understand the financial indicators under different scenarios: optimistic, realistic, and pessimistic. Modeling makes it possible to determine in advance the need for additional financing, assess the company’s resilience to stress situations (for example, rising raw material prices), and develop preventive measures. Sensitivity analysis identifies the variables that have the greatest impact on financial results and allows management attention to be focused on them.
Integration of Financial Principles into Strategy
Arkadi Khachaturian’s financial principles discussed are effective only when systematically integrated into the overall strategy. Studies of organizational life cycles, in particular the five-stage growth model by N. Churchill and V. Lewis, show that the transition to the stage of active growth requires a shift in the management paradigm [3]. The focus shifts toward the professionalization of management, including financial management. In practice, this means that decisions about investment in equipment must be made with consideration of their impact on working capital, and the policy for managing accounts receivable must be aligned with sales growth plans. A unified management framework is formed, in which operational, marketing, and financial strategies complement one another.
Managing the growth of a manufacturing enterprise is a complex task that requires a transition from reactive financial accounting to proactive management. Successful scaling is based on three fundamental principles: proactive working capital management to release internal resources; economically justified investment policy based on the NPV criterion; and the implementation of dynamic financial planning and scenario modeling to assess risks and forecast financing needs.
The applicability of these principles is universal for manufacturing companies. Their consistent implementation makes it possible not only to avoid a liquidity crisis, but also to turn scaling into a controlled process of creating long-term shareholder value.
References
- Higgins, R. C. Analysis for financial management. – 10th ed. – New York: McGraw-Hill/Irwin, 2011. – 480 p.
- Brealey, R. A. Principles of Corporate Finance / R. A. Brealey, S. C. Myers, F. Allen. – 13th ed. – New York: McGraw-Hill Education, 2019. – 992 p.
- Churchill, N. C. The five stages of small business growth / N. C. Churchill, V. L. Lewis // Harvard Business Review. – 1983. – Vol. 61, № 3. – P. 30–50.
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