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1

The relevance of using cash flows and economic profit-based methods in capital budgeting: a focus on techniques – FCFF, FCFE and EVA

Gnap Michał, Pitera Rafał

Zeszyty Naukowe. Organizacja i Zarządzanie / Politechnika Śląska

|

2023

|

z. 172

219--238

EN

Purpose: The purpose of this paper is to examine consequences of choice: cash flow or economic value-added method on the net present value of investment project, further on company value. Design/methodology/approach: The article introduces three main methods to measure the net present value of investment project: free cash flow to firm, free cash flow to equity, and economical value added. Paper examines the challenge of using these three-methods in determining what constitutes cash flow and what is the source of the investment value. Findings: The cost of capital should be calculated in different ways to ensure the validity of the calculation. Estimation should be explored by other influencing factors, such as expected rate of return, market value of cost, rather than accounting/historical value. Implementing these factors is necessary to evaluate business value. According to the presented approach the use of the FCFF technique creates fewer risks of acting against the interests of the owners than the use of the FCFE or EVA techniques. Practical implications: As one of the main implications in business, valuation is cost of capital. According to the financing priority theory, when a firm needs financing, the first consideration is internal financing, while equity financing is secondary. Both types of financing sources determine the financing structure and ultimately affect the value of the company. Originality/value: The paper provided and insight in the different investment project valuation methods that are used in the nowadays practice. This was done in an attempt to answer the question: What method should not be used in the assessment of investment projects? The paper provides evidence that most appropriate method in estimating NPV value of investment project is FCFF.

2

Impact of cash flow variation on project performance: contractors’ perspective

Tarawneh Sultan, Almahmoud Anoud Fawwaz, Hajjeh Hassan

Engineering Management in Production and Services

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2023

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Vol. 15, no. 1

73--85

EN

This study aims to determine the impact of cash flow variation in Jordanian construction projects from contractors’ perspective and its relationship with project performance. An online questionnaire was developed and distributed to a selective sample. The respondents were project managers from contracting companies working in Jordan, around 340 construction companies. The sample frame was a form of non-probability sampling of 181 project managers. The collected data were analysed using the Statistical Package of the Social Sciences (SPSS) version 25. The study results showed a positive statistically significant effect at the significance level (α ≤0.05) of cash flow variation on project performance in Jordanian construction projects. In addition, respondents indicated a high level of agreement on the impact of cash flow variation on projects’ performance, with a mean of 4.01 and a standard deviation of .546. However, on the project performance dimensions’ level, Quality came first, with a mean of 4.11 and at a high level, followed by Safety, with a mean of 4.01 and at a high level, while Final Cost ranked third with a mean of 3.96 and at a high level. Finally, Project Final Duration ranked fourth with a mean of 3.95. The researchers recommended the necessity of more efforts for a better understanding of the importance of cash flow by contractors to schedule project activities correctly and efficiently to maintain a steady state of the project cash flow.

3

S-modeS-model for project cost management in value engineering for construction companies

Yang Yang, Xiao Wanxin, Lyshenko Margarita, Zhang Yang

Bulletin of the Polish Academy of Sciences. Technical Sciences

|

2023

|

Vol. 71, nr 6

art. no. e146617

EN

Today’s fast-changing environment for construction companies requires rapid responses and adaptation of their projects. Despite the multitude of tools applied for project cost management in engineering and construction companies, there is a need to form comprehensive solutions. The purpose of the study is to form a methodological approach to project cost management in the field of engineering construction based on alternative models to diagnose the development, assessment and selection of functional areas and content of cost management in the construction project, which allows one to increase adaptability and flexibility in the process of its implementation. The basis of research methodology is modeling, which allows one to adjust the economic and financial flows based on three S-curves, one for each component of the total cost of the work: direct costs, indirect costs and reserves. These curves include the direct cost curve for the main purchasing packages as well. This brings financial flows closer to reality because it is possible to adjust the S-curves according to the behavior of each subsystem. The contribution of the study is the proposed approach of integrating concepts related to the coordination and development of project design and production management (lean construction), forming a “3D model of management”, in a broad and comprehensive management system. It assumes a comprehensive and complete way to manage civil engineering projects. The proposed methodological approach can make a significant contribution to the preparation of forecasts and estimates by planners and controllers in the context of construction projects.

4

Factors affecting time and cost trade-off in multiple construction projects

Hasan Musaab Falih, Mohammed Sawsan Rasheed

Archives of Civil Engineering

|

2022

|

Vol. 68, nr 2

549--561

EN

Cash is one of the most critical resources of a construction company that determines survival. Cash-flow management is essential for contractors, as lack of cash resources is one of the leading causes of bankruptcy in the construction industry, compared to most other sectors. The purpose of this paper is to identify factors affecting time and cost trade-off in multiple construction projects in Iraq. After reviewing a wide range of literature to determine the most common elements, a questionnaire is distributed to owners, consultants, supervising engineers, and contractors engaged in construction projects. The results of the questionnaire were analyzed using the relative importance index, arithmetic mean and standard deviation. The respondents namely assured Seventeen most essential factors; payments delay from client, progress payment due period, payment conditions, advanced payment, project delay, inaccurate project scheduling, variation orders, project duration, inaccurate project duration, profit, risk margin, project cost, cash flow forecasts, retentions percentage, estimating errors, materials cost, equipment cost, and labour cost.

5

Methodology for the Formation of a New Economic Model for Geological Exploration in Subsoil Use

Kuzina Elizaveta

Rocznik Ochrona Środowiska

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2021

|

Tom 23

891--901

EN

In modern realities, there is no unified methodology for the economic assessment of geological exploration in subsoil use. The main research question of this study was to develop a methodology for the new economic model formation for assessing geological exploration in the subsoil use for the mineral resource base rational use. The new methodology can facilitate the assessment of subsoil users of hydrocarbon reserves and resources and government bodies when putting resources and reserves on the balance sheet. In the course of the study, modeling, observation, description, and analysis methods were used. The result of the study was a new economic model for evaluating geological exploration in subsoil use. The main conclusions can be characterized by the optimization of the main indicators of the valuation of mineral raw materials. The basic principles for calculating discounted cash flow, discount rate, payback period and internal rate of return were developed.

6

Operating cash flow in commercial firms listed on the Ho Chi Minh Stock Exchange

Tai Do Duc, Dung Tran Manh, Hong Nguyen Thi Xuan

Annals of Computer Science and Information Systems

|

2021

|

Vol. 28

277--282

EN

The study is conducted to scrutinize four operating cash flow indices of commercial firms listed on the Ho Chi Minh Stock Exchange (HSX). The research employs a set of aggregated data from 14 commercial firms. At the same time, the study also receives comments from experts experienced in the same field. We used both qualitative and quantitative methods. We have performed some descriptive analysis, compared to evaluate and measure four operating cash flow indices of commercial firms, including: (i) Operating cash flow/net sales; (ii) Operating cash flow/total assets, (iii) Operating cash flow/owner's equity, and (iv) Operating cash flow/net operating profit. The results illustrate that there is a big difference in operating cash flow indices of commercial firms listed in the context of Vietnam. Foreign ownership accounts for a relatively low proportion of these firms. Based on the results, some suggestions are proposed for commercial firms in order to improve the four operating cash flow indices.

7

Sensitivity analysis of the contractor’s financial effects achieved on a single building site

Anysz Hubert, Rogala Wojciech

Przegląd Naukowy Inżynieria i Kształtowanie Środowiska

|

2019

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Vol. 28, No. 2

183--191

EN

Based on catalogues, the time schedule of erecting multi-storey building has been prepared. Real current conditions and the average cost of the building allows for creating the model where four variables influence NPV and maximum cash demand of a contractor erecting the building. The simulation made in the spreadsheet is the base for calculating and presenting the sensitivity analysis of each variable separately, as well as, for creating the surface chart where the joint influence of terms of payments affects the maximum demand for cash. The way of using of this chart has been described aiming at the protection of the contractor from losing financial liquidity while the profi table project is executed.

8

Implementation of deviation analysis method in the utilisation phase of the investment project : a case study

Janekova J., Fabianova J., Onofrejova D., Puskas E., Busa M.

Polish Journal of Management Studies

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2017

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Vol. 15, No. 1

99--109

EN

Management of investment projects incorporates phases of pre-investment, investment and utilisation. A well-conducted pre-investment and investment phases reduce the risk of problems that might occur in the utilisation phase, but cannot be eliminated entirely, as the development of internal and external assumptions may not be consistent with the plan. Therefore, even in the utilisation phase, it is necessary to analyse the economic results actually achieved with planned one. The article presents application of the deviation analysis method in the utilisation phase of the assessed investment project. Net Present Value (NPV) deviation analysis is focused on the EBITDA indicator and supplemented by specifying the causes of deviations. The results of the study show that deviations of NPV are caused mainly by lowering the production volume of both products and by a decrease in variable costs per unit. The presented measures lead to the reduction in the probability of the deviations occurrence.

PL

Zarządzanie projektami inwestycyjnymi obejmuje etapy: przedinwestycyjny, inwestycjny i wykorzystania. Dobrze prowadzone fazy przedinwestycyjne i inwestycyjne zmniejszają ryzyko pojawienia się problemów, które mogą wystąpić w fazie wykorzystania. Nie można ich jednak całkowicie wyeliminować, ponieważ rozwój wewnętrznych i zewnętrznych założeń może nie być zgodny z planem. Dlatego też, nawet w fazie wykorzystania, konieczne jest dokonanie porównania wyników ekonomicznych faktycznie osiągniętych z planowanymi. W artykule przedstawiono zastosowanie metody analizy odchylenia w fazie wykorzystania projektu inwestycyjnego. Analiza odchylenia wartości bieżącej netto (NPV) koncentruje się na wskaźniku EBITDA i uzupełniona jest poprzez określenie przyczyn odchyleń. Wyniki badania wskazują, że odchylenia wartości bieżącej netto spowodowane są głównie przez obniżenie wielkości produkcji obu produktów i zmniejszenie kosztów zmiennych na jednostkę. Prezentowane działania prowadzą do zmniejszenia prawdopodobieństwa występowania odchyleń.

9

Wybrane aspekty ekonomiczne elektroenergetyki polskiej w latach 2012 - 2014

Kaproń H., Kowal I., Połecki Z.

Rynek Energii

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2015

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Nr 6

8--14

PL

Artykuł przedstawia dane na temat wyników osiągniętych przez polską elektroenergetykę w latach 2012-2014 w powiązaniu z wybranymi wskaźnikami makroekonomicznymi. W analizowanych latach polska elektroenergetyka osiągnęła zysk brutto na działalności energetycznej, co nie było związane ze wzrostem wolumenu sprzedaży lub wzrostem cen energii elektrycznej. Artykuł przedstawia również informacje obrazujące poziom sprzedaży energii elektrycznej, wielkość cen i kosztów jej dostarczania oraz wyniki finansowe trzech dużych spółek energetycznych notowanych na Giełdzie Papierów Wartościowych.

EN

In this paper some economic data of power sector in Poland in 2012-2014 and macroeconomic indicators are presented. In these two years the Polish power sector has achieved the level of gross profits, which was not associated with an increase in sales volume or increase in electricity prices. The paper presents also basic information on the sales level, electricity prices, costs of electricity supply and some financial indicators of the three main power sector companies that are listed on the Warsaw Stock Exchange.

10

Technical and economic analysis of the impact of compressors installed at well clusters

Foidas I., Stefanescu D. P.

AGH Drilling, Oil, Gas

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2014

|

Vol. 31, no. 2

263--270

EN

The current stage of mature gas fields exploitation is characterized by increasing the efforts for maintaining the wells in production, in order to maximize the gas recovery factor in conditions of economic profitability. In this respect, a permanent concern of the specialists in this domain is represented by the adjustment of the compression capacities with the dynamics of the energetic parameters of every well belonging to these fields. This assumes the compression units installing as close to the well head in order to decrease the dynamic pressure, allowing the gas ratę increasing. On the other hand, decreasing the dynamic pressure at the well head, results also in reducing the minimum gas rate necessary for removal the liquid accumulated at the wells bottom, avoiding thereby the risk of the wells flooding. The pilot project of installing the portable compressors at the level of some gas groups operated by Romgaz, was a real success, the future perspectives regarding the production enhancing and revenue growth, based on this technology, being certainly.

11

Ocena wewnętrznej stopy zwrotu w warunkach niepełnej informacji

Gawrońska D.

Zeszyty Naukowe. Organizacja i Zarządzanie / Politechnika Śląska

|

2010

|

z. 54

33-48

PL

W artykule przedstawiono wskaźnik wewnętrznej stopy zwrotu IRR przedsięwzięcia inwestycyjnego. W określaniu wartości tego wskaźnika uwzględniono niepewność, co do wartości przepływów pieniężnych w kolejnych okresach trwania inwestycji. Przedstawienie ich jako zmiennych rozmytych umożliwiło uwzględnienie zmienności oraz niepewności tych parametrów, a co za tym idzie - dokładniejsze określenie wewnętrznej stopy zwrotu IRR.

EN

An article discusses index internal rate of return investment venture IRR. For the sake of uncertainty with regard to future cash in next period of investment. Such approach make possible changeability and uncertainty those parameters and accurate describe profit flow by means index IRR.

12

Przepływy pieniężne w prognozowaniu upadłości przedsiębiorstwa. Przegląd literatury

Wędzki D.

Badania Operacyjne i Decyzje

|

2008

|

nr 2

87-104

PL

Artykuł zawiera przegląd literatury polskiej i światowej w zakresie wykorzystania wskaźników finansowych bazujących na przepływach pieniężnych do prognozowania upadłości przedsiębiorstwa. - W kwestii przydatności przepływów pieniężnych jako takich sformułowano syntetyczne konkluzje, a mianowicie: - przepływy pieniężne istotnie różnią się od wyniku finansowego, a zatem dostarczają znaczącej informacji, - uproszczone przepływy pieniężne charakteryzują się niższą istotnością. Dokonano przeglądu formuł wskaźników bazujących na przepływach pieniężnych. Zaproponowano kierunki dalszych badań: - wykorzystanie komponentów rachunku przepływów pieniężnych, - konstruowanie wskaźników korespondujących ze wskaźnikami memoriałowymi, - uwzględnianie zależności przyczynowo-skutkowych pomiędzy wskaźnikami. Sformułowano opinię, że bardzo mało eksplorowanym obszarem jest wykorzystanie tzw. analizy znaków w modelowaniu upadłości.

EN

The paper presents a review of world and Polish literature on usage of financial ratios based on cash flow for corporate bankruptcy prediction. In a field bankruptcy modeling it was concluded that: -cash flow is significantly different comparing to net income, and therefore cash flow provides incremental important information, -simplified measures of cash flow have lower significance than cash flow statement. -In the field of construction of financial ratios based on cash flow some directions of further research were suggested: -broader implementation of cash flow statement, -construction of cash flow financial ratios comparable to accrual financial ratios, -incorporation of cause-effect relations between ratios to bankruptcy model. Finally an opinion that the so called sign analysis of cash flow is an under-explored area in bankruptcy modeling was formed.

13

Metodologia wyceny wartości rynkowej marki na przykładzie metody opłat licencyjnych

Michna A.

Zarządzanie Przedsiębiorstwem

|

2003

|

Vol. 6, nr 1

30-33

EN

The article presents a method to calculate licence fees used for brand valuation. The article discusses an algorithm used to calculate cash flow for ex ante evaluation. Sales volume and sales value reflect the strategic goals of a company and their evaluation is of key importance in the method presented, therefore the need for in-depth knowledge of the sector in which a given company operates is stressed, as well as knowledge about the competitiveness of its products and relationships with customers and suppliers alike. The article also discuses a method to calculate licence fees for valuated brands. Models to calculate discount rate are presented and attention is paid to the need to adjust a given model to an established cash flow. Methods to calculate residual value are also reviewed; residual value reflects the value after a given forecast period, when cash flows have stabilized.

14

Ocena efektywności inwestycji a założenie o realizacji przepływów pieniężnych na końcu roku

Wiśniewski T.

Zeszyty Naukowe. Prace Instytutu Ekonomiki i Organizacji Przedsiębiorstw / Uniwersytet Szczeciński

|

2002

|

Nr 40

207-215

EN

Paper concentrates on end-of-year cash flow assumption in capital budgeting. On the basis of simulation model it has been proved that there could be substantial change (in plus or in minus) in the value of NPV or IRR, when the sub-annual frequencies of inflow and outflow streams are taken into account. Therefore, the traditional and-of-year assumption can give misleading results.

15

Ocena wartości złóż węglowodorów

Byrska-Rąpała A.

Gospodarka Surowcami Mineralnymi

|

2002

|

T. 18, z. spec.

241-251

PL

Ostatnia dekada przyniosła istotną zmianę w zarządzaniu strategicznym przedsiębiorstw naftowych. Inżynieria szacowania wartości złoża oferuje wiele metod szacowania godziwej wartości złoża (FMV), które można podzielić na cztery zasadnicze kategorie: metody sprzedaży porównawczych, metody oparte o sztywne wzory, metody bazujące na prognozach dochodu, metody kosztu ekwiwalentnego. Artykuł przedstawia najważniejsze problemy związane z wyceną FMV, wzory do obliczania FMV dla złóż eksploatowanych z wykładniczym, harmonicznym lub hiperbolicznym tempem wydobycia. W końcowej części artykułu autor prezentuje koncepcje zarządzania wartością złoża.

EN

In the last decade the significant change in the strategic planning process of the oil companies was observed. The evaluation engineering offers many methods for determining fair-market-value of a hydrocarbon property (FMV). All of them fall into four general categories: comparative sales, rule of thumb, income forecast, replacement cost. The paper presents main problems connected with the determination of prospects FMV, the rules to estimation FMV of hydrocarbon producing property with one of the decline curve models: constant-percentage, harmonic or hyperbolic. In the last part of the article the author presents the concept of managing the value of a geological property.

16

Multi-mode resource-constrained project schedulig problem with discounted positive cash flows - simulated annealing vs. tabu search

Józefowska J., Mika M., Waligóra G., Węglarz J.

Foundations of Computing and Decision Sciences

|

2002

|

Vol. 27, No. 2

97-114

EN

In this paper the multi-mode resource-constrained project scheduling problem with discounted cash flows is considered. A positive cash flow is associated with the completion of each activity. The objective is the maximization of the net present value of all cash flows. Local search metaheuristics: simulated annealing and tabu search are proposed to solve this problem. A comprehensive computational experiment is described, performed on a set of standard test problems constructed by the ProGen project generator, where the activities' cash flows are generated randomly with the uniform distribution. The metaheuristics are computationally compared with the random sampling method. The results are analyzed and discussed and some final remarks are included.

17

Necessary and Sufficient Conditions for the Stability of Interval Matrices

Białas S., Jakubowska M.

Bulletin of the Polish Academy of Sciences. Technical Sciences

|

2001

|

vol. 49, nr 3

467-477

EN

In this paper new necessary and sufficient conditions for the stability of the interval matrix [formula] are presented. These conditions represent a modification of paper [13]. Also, an algorithm for checking the stability of the interval matrix [formula] is proposed. The comparison of efficiency of the new algorithm and the algorithm from paper [13] is demostrated by means of examples.

18

Extension of Khang's Immunization Formula

Zaremba L.S., Rządkowski G.

Bulletin of the Polish Academy of Sciences. Technical Sciences

|

2001

|

vol. 49, nr 3

527-536

EN

The paper presents two theorems on immunization in the continuous context when a liability consists of a single outflow at a known future date. It is assumed in Theorem 1 that interest rates h(O, t) shift to their new values h * (O, t) = h(O, t) + f()..)a(t) where ).. is a random parameter "chosen" by a financial market under consideration, while a(t) is a continuous function and f()..) is twice continuously differentiable with f(O) = O, f' (O) #- O. It is proved that the local immunization is achieved and a formula for the immunizing duration is derived. Theorem 2 provides a formula for the immunizing duration of the portfolio combined with two cash flows. These two theorems extend validity of all similar type results presented by Bierwag (1983).

19

Metody ilościowe w zarządzaniu płynnością finansową przedsiębiorstwa

Urbańczyk E.

Zeszyty Naukowe. Prace Instytutu Ekonomiki i Organizacji Przedsiębiorstw / Uniwersytet Szczeciński

|

1999

|

Nr 37

111-137

EN

The article presents the merit and scope of the cash liquidity analysis in an enterprise. The analysis can be carried out on the basis of cash flows during periods for which profit and loss statement was prepared or on the basis of current assets and liabilities balances for the beginning and the end of a financial period. The article also presents cash liquidity levels and the static and dynamic methods of calculating the level of liquidity. There are presented also the issues on effective working capital management in an enterprise and the strategy of planning a desired level of working capital and it's structure based on the estimation methods from asset and liabilities point of view. Empirical considerations are confirmed by practical examples. In the further part of the article there are formulated strategies of loan policy of an enterprise and possible and usefiil tools and instruments to utilise the policies. Then the article deals with the characteristic of the credit risk analysis, which include quality, quantitative and mix methods. Finally, it describes short-term financing resources and appraisals of the short-term financial management showing empirical example based on existing enterprise.