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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

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2023

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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

The financing structure of Polish non-financial enterprises in the face of financialisation challenges

Rydzewska Alina

Zeszyty Naukowe. Organizacja i Zarządzanie / Politechnika Śląska

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2020

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z. 142

263--272

EN

Purpose: The aim of this article was to examine whether financialization phenomena affected the financing structure of non-financial enterprises operating in Poland. Changes in the financing structure in the era of financialization are manifested by the growing share of debt (foreign capital), the increase in the importance of securities while reducing the share of credit as sources of financing business activities and the growing involvement of (passive) derivatives. Design/methodology/approach: The analysis was conducted on the basis of indicators identifying the share of foreign capital in total liabilities, the structure of passive financial instruments and the structure of passive derivatives. Findings: Based on the empirical analysis, it was found that the phenomenon of the financing structure of financialization is not noticeable on the example of the surveyed business entities. The share of foreign capital in total liabilities of enterprises in 2010-2018 was around 0.5. In the financial assessment, it is the optimal financing structure. Research limitations/implications: Financialization is a developing phenomenon. The presented research covered the years 2010-2018, therefore research on the discussed issue should be continued. Originality/value: The originality of the article is associated with the analysis of the increase in the importance of debt in financing operations in relation to enterprises in Poland, including by industry.

3

Capital structure and corporate finance structure

Jędrzejczak-Gas J.

Management

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2010

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Vol. 14, no 1

262-275

EN

In the literature so far little attention has been devoted to the analysis of capital structure and financing structure of enterprises of all sizes. The aim of this paper is to analyze and evaluate the development of the capital structure and financing structure of SMEs and large enterprises in the past 10 years, as well as the attempt to find answers to the question whether the analized companies have aspired to target optimal capital structure.

PL

W literaturze przedmiotu niewiele uwagi poświęcono dotychczas analizie struktury kapitału i struktury finansowania przedsiębiorstw różnej wielkości. Celem opracowania jest analiza i ocena kształtowania się struktury kapitału i struktury finansowania MŚP oraz przedsiębiorstw dużych w ciągu ostatnich 10 lat oraz próba znalezienia odpowiedzi na pytanie czy badane przedsiębiorstwa dążyły do docelowej optymalnej struktury kapitału.