Economic Analysis: Theory and Practice
 

Strategic modeling of company profits under the Monte Carlo method

Vol. 17, Iss. 9, SEPTEMBER 2018

Received: 28 June 2018

Received in revised form: 23 July 2018

Accepted: 1 August 2018

Available online: 28 September 2018

Subject Heading: THEORY OF ECONOMIC ANALYSIS

JEL Classification: G30, G32

Pages: 1622–1641

https://doi.org/10.24891/ea.17.9.1622

Kogdenko V.G. National Research Nuclear University MEPhI, Moscow, Russian Federation
kogdenko7@mail.ru

ORCID id: not available

Importance The article addresses the problems related to strategic financial modeling.
Objectives The aim is to build a strategic profit model and, on its basis, evaluate company risks, using the Monte Carlo method.
Methods The study rests on forecasting algorithms, financial modeling, and risk assessment techniques for the company as a whole.
Results I developed methods for strategic financial modeling of profit under the Monte Carlo method. It includes five stages: creating data array; constructing a projection model of profit; substantiating the predictive algorithm for model's variables and determining their projected values; assessing the volatility of the model variables and defining the lower and upper limits of their variation on the basis of confidence intervals; generating the profit scenarios under the Monte Carlo method and assessing the profit at risk. The methodology has been tested on real public data of a Russian company.
Conclusions The offered approach enables to assess the influence of volatility on business and its financial performance. The developed model helps analyze changes in the business portfolio structure, the contribution of business portfolio components to the overall company risk, and evaluate cost minimization measures. The article may be useful for specialists of financial services involved in risk-based decision-making.

Keywords: financial model, risk analysis, Monte Carlo method

References:

  1. Mayer-Schönberger V., Cukier K. Bol'shie dannye. Revolyutsiya, kotoraya izmenit to, kak my zhivem, rabotaem i myslim [Big Data: A Revolution That Will Transform How We Live, Work and Think]. Moscow, Mann, Ivanov i Ferber Publ., 2014, 156 p.
  2. Demkin I.V. [Assessing the integrated innovation risk under the Value at Risk methodology]. Problemy analiza riska = Issues of Risk Analysis, 2006, vol. 3, no. 4, pp. 362–378. (In Russ.)
  3. Hanke J.E., Wichern D.W., Reitsch A.G. Biznes-prognozirovanie [Business Forecasting]. Moscow, Vil'yams Publ., 2017, 656 p.
  4. Carlberg C. Biznes-analiz s ispol'zovaniem Excel [Business Analysis with Microsoft Excel]. Moscow, Vil'yams Publ., 2017, 576 p.
  5. Zharov D. Finansovoe modelirovanie v Excel [Financial modeling in Excel]. Moscow, Al'pina Biznes Buks Publ., 2008, 170 p.
  6. Damodaran A. Strategicheskii risk-menedzhment: printsipy i metodiki [Strategic Risk Taking: A Framework for Risk Management]. Moscow, Vil'yams Publ., 2017, 496 p.
  7. Pike R., Neale B. Korporativnye finansy i investirovanie [Corporate Finance and Investment: Decisions and Strategies]. St. Petersburg, Piter Publ., 2006, 784 p.
  8. Berzon N.I., Buyanova E.A., Gazman V.D. et al. Innovatsii na finansovykh rynkakh [Innovation in financial markets]. Moscow, NRU HSE Publ., 2013, 420 p.
  9. Holmes E. Risk-menedzhment [Smart Risk]. Moscow, Eksmo Publ., 2007, 304 p.
  10. Zaman A. Reputatsionnyi risk: upravlenie v tselyakh sozdaniya stoimosti [Reputational Risk: How to Manage for Value Creation]. Moscow, Olimp-Biznes Publ., 2008, 416 p.
  11. Costantini P. Analiz effektivnosti investitsii metodom CROCI – opyt vedushchikh kompanii [Cash Return on Capital Invested: Ten Years of Investment Analysis with the CROCI Economic Profit Model]. Moscow, Vershina Publ., 2007, 288 p.
  12. Bernstein L.A. Analiz finansovoi otchetnosti: teoriya, praktika i interpretatsiya [Financial Statement Analysis: Theory, Application and Interpretation]. Moscow, Finansy i statistika Publ., 2003, 624 p.
  13. Lyubushin N.P., Babicheva N.E., Igoshev A.K., Kondrashova N.V. [Modeling the sustainable development of different hierarchical level economic systems based on a resource-oriented approach]. Ekonomicheskii analiz: teoriya i praktika = Economic Analysis: Theory and Practice, 2015, no. 48, pp. 2–12. URL: Link (In Russ.)
  14. Damodaran A. Investitsionnaya otsenka. Instrumenty i metody otsenki lyubykh aktivov [Investment Valuation: Tools and Techniques for Determining the Value of Any Asset]. Moscow, Al'pina Biznes Buks Publ., 2008, 1340 p.
  15. Antill N., Lee K. Otsenka kompanii: analiz i prognozirovanie s ispol'zovaniem otchetnosti po MSFO [Company Valuation Under IFRS: Interpreting and Forecasting Accounts Using International Financial Reporting Standards]. Moscow, Al'pina Pablisher Publ., 2016, 580 p.

View all articles of issue

 

ISSN 2311-8725 (Online)
ISSN 2073-039X (Print)

Journal current issue

Vol. 17, Iss. 11
November 2018

Archive