Cash Flow Approach Research Articles

Coal mine methane in Kazakhstan: economic and environmental case study

The study aimed to evaluate the economic and financial viability of a coal mine methane (CMM) utilization project in Central Kazakhstan, demonstrating a methodology for similar initiatives. The analysis was based on the 2013 project proposed by the US Environmen-tal Protection Agency (EPA) that intended to capture methane emissions from six coal mines for electricity generation, yet was never implemented. The study’s relevance stems from Kazakhstan’s 2030 methane pledge, recent progress in the country’s climate change-related policy, mineworker mortality in 2023, and the shift of mines ownership. Building upon the technical specifications of the 2013 US EPA project, this research em-ployed standard financial and economic cost-benefit analysis (CBA). The financial model utilized a traditional discounted free cash flow approach, while the economic model in-corporated additional factors like the value of statistical life (VSL), shadow pricing, as well as benefits associated with mitigating ozone health impacts, crop damage, mine ex-plosion risks, and CO2 emissions. The economic model has indicated a positive net pre-sent value of $243 mln and 42% internal rate of return. The financial analysis also sug-gests potential profitability under fair electricity and carbon pricing market conditions. To assess project robustness under varying economic and financial assumptions, the study included a sensitivity analysis. The research has likewise leveraged prior CMM-related studies in Kazakhstan and provides valuable guidance for analyzing similar projects. In addition, it also highlights the need for certain adjustments in the current legislation to incentivize such projects, as well as to promote environmental sustainability and social development by mitigating methane emissions, which aligns with Kazakhstan’s climate goals.

Optimal Pricing and Advertisement Policy for an Advance Order Booking Inventory System with Order Cancellation under Inflationary Condition

The e-commerce business has grown significantly over the past few years, mainly due to providing a better customer experience through advance booking and order cancellation options with a full refund. In this paper, the inventory control problem of a firm that offers advance booking for the product and cancellation (with a full refund) before the due delivery date is addressed. A profit maximization model is formulated to find the optimum inventory cycle length, the selling price of the product, and advertisement expenditure. The discounted cash flow approach is used to take into account cash flows at different time points. Advance booking is made at the beginning of the inventory cycle at a discounted price until the time of stock arrival, followed by usual spot sales. The number of order cancellations during the advance booking period is dependent on the waiting time for receiving the order. The impact of revenue collected through advance sales is considered by including interest earned. Product demand is assumed to be the function of advertisement expenditure and the selling price of the product. A solution procedure is suggested, and the model is illustrated through numerical analysis, thereby providing valuable managerial insights based on the results obtained.

Quantifying carbon additionality for uneven-aged forests

Forests can be managed to sequester atmospheric carbon in addition to producing timber. Forest carbon represents a nature-based solution to climate change and global warming. To internalize the positive externality (social benefit) of forest carbon, additionality must be defined and quantified. In this study, the discounted cash flow approach is applied to an uneven-aged sugar maple forest at a steady state to measure carbon additionality. Carbon credits are generated from the marginal forest growth, while a carbon release penalty is incurred by a harvest. The business-as-usual scenario is defined by a shorter harvest cycle, while an alternative carbon scenario is defined by a longer one. Then, additionality is defined by the difference in the net present value of carbon sequestration on a perpetual basis between the two scenarios. Compared with previous analysis on even-aged southern pine plantations, there is some evidence that the uneven-aged sugar maple forest is less economically effective in carbon offset as indicated by the benefit-cost ratio.

UNRAVELING DIVIDEND PAYOUTS: A COMPREHENSIVE ANALYSIS OF CASH FLOW AND EARNINGS APPROACHES IN THE LISTED MANUFACTURING COMPANIES

This study presents a comprehensive analysis of dividend payouts in the banking sector, with specific focus on cash flow and earnings approaches. Study examines and tests the determinant variables of dividend payouts using the Ordinary Least Squares (OLS) Regression method. Data for this analysis is collected from the audited financial reports of 50 manufacturing companies listed on Pakistan Stock Exchange during the five-year period from 2017 to 2021. Study's results reveal that firms tend to exhibit higher dividend payouts when they project high profitability growth, indicating a correlation between profitability and dividend payments. However, study did not find a significant effect of earnings per share on dividend per share, despite the positive impact of profitability on dividend payout. On the other hand, cash flow per share demonstrated positive and significant influence on dividend per share. These findings offer valuable insights for the investors and decision-makers, providing them with useful information for making investment choices. The analysis allows for an examination of the factors that affect dividend decisions. This research expands the understanding of how cash flow and earnings influence dividend payouts and enhances the theoretical foundation of dividend policy in context of listed manufacturing companies.

OMEGA geração SA Valuation: study applied to a company with renewable electricity assets

This work aims to evaluate the value of the operating assets of generation of the company Omega Geração S.A., listed on the Brazilian stock exchange (B3), under the code OMGE3. In which, to carry out the calculation of the equity value, business analysis tools through asset Valuation (specifically the discounted cash flow approach) were used. In order to carry out the Valuation model of the assets under study, the financial statements for the years 2016 to 2020 were used to make assumptions for the projection model. With the assumptions defined, the company’s cash flows were projected for 30 years, and after that period a terminal value with no real growth was adopted. Then, future cash flows were discounted to present value by a discount rate. Modeling limitations have been fixed using information from companies’ sector that have similar assets. After the cash flow projections, and using the assumptions adopted, the equity value for the company’s operating generation assets is R$ 3,050 million. Some sensitivity simulations were carried out on the equity value. The assumptions used in the sensitivity matrix were: growth rate, cost of capital (discount rate), energy price in the spot market and cost of sales. The sensitivity matrix of the assumptions allowed the creation of a range of values for the company’s equity.

Carbon additionality: an illustration by southern pine plantations

Forests not only produce fiber but also sequester atmospheric carbon, which offers a nature-based solution to global warming. To internalize the externality of forest carbon, additionality must be defined and quantified. This study applies the discounted cash flow approach to price forest carbon additionality. A carbon credit is derived from the annual marginal forest growth, while a carbon release penalty is triggered by a harvest based on biomass removal. The business-as-usual is defined by the Faustmann rotation, in which the profit from timber production from perpetual rotations is maximized. Accordingly, additionality is defined by the net present value of the extra carbon sequestration beyond the baseline on a perpetual basis. It is discovered that a higher planting density on a better quality site combined with no thinning provides a more cost-effective means for a southern pine plantation to sequester additional carbon. It is also found that a shorter carbon contract is more cost-effective in achieving additionality despite a lower total carbon benefit.

Investment Project Analysis of PT. Berau Coal Block 5-6 Binungan Using Discounted Cash Flow Method

The evaluation of business projects that have high complexity and uncertainty will require a thorough study since the coal mining industry is a business that has extremely high costs as well as a high risk where there are many uncertainty elements that impact this sector. Blocks 5 and 6 are locations that have previously been mined by PT. Berau Coal in an effort to boost output. PT. Berau Coal now wants to reopen the block 5-6 region to optimize the area that was previously deemed unproductive for mining in an effort to boost coal output there. To assess if the block 5–6 region can be mined once more in an endeavor to increase PT. Berau Coal's production reserves, an analysis is thus required. PT. Berau Coal currently uses the Discounted Cash Flow (DCF) approach to determine the viability of an investment. The mathematical results of the DCF technique will be taken into account by management when making mining decisions. Further research is required to be able to maximize shareholder value because this technique has a restriction in that it does not offer flexible project for management. We obtain an NPV of $14,44 million, an IRR of 67,98%, and a Payback Period of 3.4 years based on the results of the DCF calculations performed on the Block 5-6 project from the mine plan for PT. Berau Coal. There are a number of preparations that must be made for the mining plan for this project, including the building of farm roads to replace existing roads that are part of the mining plan and pumping operations to lower the water level in the mining plan area. There is no new investment required because the infrastructure for mining equipment is already a part of the contractor selection component and the infrastructure for processing coal already uses it.

The economic ship speed under time charter contract—A cash flow approach

Various deterministic models for economic ship speed optimisation exist in the literature, but none considered the time charter contract, and in particular the influence of the redelivery time. This paper studies the economic optimal speed of a ship on a (time) charter contract through the development of an Operational Research (OR) optimisation model. The ship charterer’s objective is to maximise the Net Present Value (NPV) of a cash-flow function of the ship’s activities over a relevant future horizon H, where H can be interpreted as any possible day within the redelivery time window as specified in the time charter clause. We develop a general time charter contract model PM(H), and three special cases P1, P∞ and PM(H→∞), each model mapping onto different contractual contexts, and present algorithms to each of these models for finding optimal ship speeds for any journey structure. While ships on time charter contracts may travel to any series of ports during the charter contract, examining the models’ behaviour when the ship repeatedly executes a roundtrip journey allows us to reach some important general insights about the impact of contract type for any journey structure. In particular, economic speeds in PM(H) follow a very different pattern than those in the classic models from the literature, as well as in the recent class of NPV models P (n,m,Go) from Ge et al., (2021). We prove that P1 and P∞ map quite generally to the classes P (1,n,0) and P (∞,n,−), respectively, while P (n,m,0) shows behaviour in approximation equal to the special case PM(H→∞). We prove that two main strands of speed optimisation models from the literature, which did not consider the contract type nor used the NPV approach, show equivalence under mild conditions to P1 and P∞, respectively. These results facilitate matching models to contract types. None of these models, however, matches the general time charter contract model PM(H) introduced in this paper. In general, the paper demonstrates how optimal economic speed is dependent on the (time) charter contract type, and that this should thus be reflected in the speed optimisation model developed.

Effect of Future Price Increase for Products with Expiry Dates and Price-Sensitive Demand under Different Payment Policies

The current study works with an inventory management strategy under the discount cash flow approach for perishable commodities with expiry dates, price-sensitive demand, and investment in preservation technology. In addition, this study examines the probable influence of price-increase on the replenishment strategy of the retailer where specific delivery units can be purchased. Furthermore, in this model, two circumstances are deliberated: (I) when the time of the specific delivery matches with the reordering time of the retailer or (II) when the time of the specific delivery emerges within the duration of the sale. Before the price increase, the supplier provides two payment policies to the retailer from which they can choose one. The policies are either: (1) a permissible delay in payment on regular orders or (2) a discount in payment for the specific delivery. The key goal is to optimize the overall profit for the retailer with respect to the sales price, investment in preservation technology, and cycle time during the depletion time of the specific delivery. In addition, an algorithm is created to optimize the results and seven numerical illustrations are discussed to explain the results along with the special case. Finally, to display the pertinence of this model, a sensitivity analysis of the main parameters is performed with important managerial implications. The key findings of this research are (1) before the price increase, the retailer gets the maximum profit if the retailer chooses a discount in payment policy on the specific delivery; (2) how much to order from the supplier and when to place a specific delivery to generate a maximum profit; and (3) the price-sensitive demand and assumption of future price increase negatively affect the retailer’s overall profit, and the retailer gets maximum benefits if the retailer initially orders the maximum number of units from the supplier before the price increase.

Discount cash flow approach to the optimal producing policy of the EPQ model under trade credit

This paper extends an EOQ model to consider the optimum production quantity of the EPQ model that is not only dependent on the inventory policy but also on firms’ credit policy. Here, the conditions of using a discounted cash-flows (DCF) approach and trade credit depending on the quantity produced are discussed. We consider that if the production quantity is less than at which the delay in payments is permitted, the payment for the item must be made immediately. Otherwise, the fixed trade credit period is permitted. This paper incorporates all concepts of a discounted cash-flows (DCF) approach, trade credit and the quantity production inventory to generalize the EOQ model.)

Analysis of the Effect of Corporate Social Responsibility Towards Investment Efficiency of Oil and Gas Companies in Indonesia

Investment efficiency in any business sector is absolute. Investment efficiency in this study was investigated using the prevailing cash flow approach through which we examined its effect on the six dimensions of upstream oil and gas corporate social responsibility (CSR)/community development program (CDP) expenditures in Indonesia. This study aimed to provide information on the most important CSR/CDP expenditures that needed to be prioritized, as the expenditure had a broad impact on the company’s investment efficiency and was a part of the license-to-operate strategy. Descriptive analysis with panel data regression was used as the research method. The novelty of the research was on CSR activities and the forms of CSR, which included donation, social, and economic, in the Indonesian upstream oil and gas industry. The use of the company age as an additional control variable in the research also became a research novelty. The research samples were oil and gas companies in Indonesia at the exploitation stage, which already have gross revenue and equity to be split and reported CSR activities, with research observation conducted from 2018 to 2021. The results of the study concluded that CSR on education and the profit before interest and tax control variable had a significant and positive effect on investment efficiency, while the company age and sales growth control variables had a significant and negative effect on investment efficiency. As an implication, the CSR implemented by the contractors must be carried out holistically, accompanied by accurate, precise, and careful calculations in CSR/CDP funds realizations. Additionally, the Special Task Force for Upstream Oil and Gas Business Activities (Satuan Kerja Khusus Pelaksana Kegiatan Usaha Hulu Minyak dan Gas Bumi; SKK Migas), as the contractor management, must provide CSR/CPD contributions evidence as part of the upstream oil and gas social investment. Our recommendation for future studies is to change dependent variables into social investment results, the result of the monitoring and evaluation program, and other factors.

Relative Valuation with Machine Learning

ABSTRACTWe use machine learning for relative valuation and peer firm selection. In out‐of‐sample tests, our machine learning models substantially outperform traditional models in valuation accuracy. This outperformance persists over time and holds across different types of firms. The valuations produced by machine learning models behave like fundamental values. Overvalued stocks decrease in price and undervalued stocks increase in price in the following month. Determinants of valuation multiples identified by machine learning models are consistent with theoretical predictions derived from a discounted cash flow approach. Profitability ratios, growth measures, and efficiency ratios are the most important value drivers throughout our sample period. We derive a novel method to express valuation multiples predicted by our machine learning models as weighted averages of peer firm multiples. These weights are a measure of peer–firm comparability and can be used for selecting peer‐groups.

Deferring real options with solar renewable energy certificates

This study evaluates investment in a utility-scale solar power plant using a real-options approach (ROA). Although ROAs have been widely applied in the literature, the deferring option for a utility-scale power plant has not been fully examined, especially within the context of the unique subsidy program of solar renewable energy certificates (SRECs) in the USA. Using data from one of the most developed solar electricity markets in New Jersey, we incorporate the time-varying volatility of electricity prices and bounded SREC prices in real-options valuation. Our results show that deferring real options generates significant value for the project that the traditional discount cash flow approach ignores. It is thus optimal to postpone the investment in more than 70% of cases. In addition, we demonstrate that debt financing is crucial for renewable energy investments.

Controlling of Profit Distribution in Dividend Policy Shaping

The Russian stock exchange resumes its functions after a temporary break due to the special operation in Ukraine. A lot of companies tend to modify their finance behavior, for instance, methods of finance control are rather topical today, as both cash flow lines and approaches to dividend policy shaping are changing. The goal of the research is to identify dependence between dividend policy, key parameters of company work and investment behavior of the population. Today extra drivers of economic growth and tools of market stabilization are necessary. According to the theory of company value corporations would increase their capitalization and thus raise shareholders’ profits, while now shareholders are interested in developing a dividend portfolio, whose profits are comparable with deposits and investing into bonds. Finance behavior of market entities has altered, as des-intermediation is going down, further differentiation of tax rates took place, tax burden on investors (both legal entities and individuals) was optimized and investors were differentiated by finance groups with provision of adequate dividends for each group. The author points out that due to serious changes on finance market we need controlling of profit distribution and corporate dividend flows, as well as timely revealing of deviations in cash flows.

Stratified state aggregation (SSA) approach in real option valuation: combining price and grade uncertainties in tin mining projects

The only source of revenue for mining is the sale of its reserves. Therefore, a particular quantity of reserves and a specific selling price will generate a certain income. However, these income determinants are very unpredictable. Theoretically, real options (RO) substitute the discounted cash flow (DCF) approach to account for this uncertainty. Generally, RO quantify the uncertainty particularly related to price volatility. However, owing to its mathematical intricacy and application, the utility of RO is minimal. In addition, historical data analysis cannot be applied for spatial uncertainty related to grade uncertainty. Conventional RO approaches, such as the Black–Scholes method and lattice valuation technique, cannot measure a project with multiple uncertainties. In addition, these methods are mathematically complex and not sufficiently flexible for practical adaptation. This study proposes originality on simulation technique called stratified state aggregation (SSA) development that combined price and grade uncertainties in estimating the value of mining projects. For case study, a tin mining project of PT Timah Tbk in Indonesia was undertaken, specifically for short-term mine planning in underwater mining operations at two mining locations. We utilized the historical data natural logarithmic analysis to determine price uncertainty and conditional simulation to evaluate grade uncertainty. Our results indicated that mining uncertainties might be modeled using RO and value-added through SSA can be used to assess multi-uncertainty and multi-stage mining (rainbow option). The SSA decision aligned with the DCF method with improvement in uncertainty assessment. In addition, incorporating management flexibility may aid in alleviating concerns regarding the continuation or termination of a project.

Strategi Pengelolaan Kekayaan Menggunakan Wealth Management Dalam Upaya Mengembangkan Sarana Dan Prasarana Di Pondok Pesantren Sunan Drajat

This research was conducted against the background of important asset and wealth management in educational institutions, especially Islamic educational institutions. This is because many Islamic educational institutions do not know the potential of their assets. Asset management using wealth management with Robert's quadrant cashflow approach. T. Kiyosaki can be used as a reference in mapping the assets owned by Islamic educational institutions, to then be developed and can have an impact on aspects of education support, one of which is wealth management facilities and infrastructure conducted in sunan drajat boarding school is done with the aim that the foundation can meet the needs independently without depending on other parties, especially in the development of educational facilities and infrastructure. This study includes qualitative research. Data is collected through interviews, documentation and observations. The results of the study showed that: 1) Wealth management, especially finance is carried out with a closed-transparent principle, with the division between educational financial institutions (BKK) and business financial institutions (Perkom) while holding the concept of financial management and financial management principles. 2) Wealth management conducted in sunan drajat boarding school using cashflow quadrant submitted by Robert T. Kyoosakai that has been modified in accordance with the educational environment, shows that Sunan Drajat boarding school is close to financial freedom in the management of his wealth. 3) The impact of Wealth Management in the development of educational facilities and infrastructure in Pondok Pesantren Sunan Drajat, among others, the first, the completeness of educational facilities and infrastructure. Secondly the maintenance of educational facilities and infrastructure and third, the effective use of educational facilities and infrastructure

Can We Validate the Value? Valuing Automotive and Component Sub-Sector Companies Listed on the Indonesia STOCK Exchange during the Covid-19 Pandemic Crisis

This study provides a comprehensive fundamental-based value analysis of firms using Discounted Cash Flow (DCF) and Relative Valuation (RV) approaches. This study reveals how these approaches behave in valuing firms during a crisis such as the one caused by the current covid-19 pandemic and how to validate the results as well as correct them if the results was invalid. The object of the study is companies in the automotive and component sub-sector listed in Indonesia Stock Exchange (IDX) in 2020. The company's historical financial data between 2016 and 2020 are used to predict its financial behavior over the next five years under three scenarios: optimistic, moderate, and pessimistic. From the study employing the DCF method, the following results were obtained: ASII and INDS stocks were overvalued in all scenarios, GJTL were undervalued in all scenarios, and SMSM were overvalued in pessimist and moderate scenarios while undervalued in optimist scenario. Correction upon intrinsic values of SMSM and ASII is required since the result from RV analysis imply that the DCF results of both companies are not entirely valid, which indicates that the pandemic crisis has significantly affected the value of both companies. Investment recommendations for both ASII and INDS were to sell the stocks while for both SMSM and GJTL were to buy the stocks.

Can We Validate the Value? Valuing Automotive and Component Sub-Sector Companies Listed on the Indonesia STOCK Exchange during the Covid-19 Pandemic Crisis

This study provides a comprehensive fundamental-based value analysis of firms using Discounted Cash Flow (DCF) and Relative Valuation (RV) approaches. This study reveals how these approaches behave in valuing firms during a crisis such as the one caused by the current covid-19 pandemic and how to validate the results as well as correct them if the results was invalid. The object of the study is companies in the automotive and component sub-sector listed in Indonesia Stock Exchange (IDX) in 2020. The company's historical financial data between 2016 and 2020 are used to predict its financial behavior over the next five years under three scenarios: optimistic, moderate, and pessimistic. From the study employing the DCF method, the following results were obtained: ASII and INDS stocks were overvalued in all scenarios, GJTL were undervalued in all scenarios, and SMSM were overvalued in pessimist and moderate scenarios while undervalued in optimist scenario. Correction upon intrinsic values of SMSM and ASII is required since the result from RV analysis imply that the DCF results of both companies are not entirely valid, which indicates that the pandemic crisis has significantly affected the value of both companies. Investment recommendations for both ASII and INDS were to sell the stocks while for both SMSM and GJTL were to buy the stocks.

Assessing the economic profitability of Paulownia as a biomass crop in Southern Mediterranean area

The increase of renewable energy production worldwide, occurred in the last years, is also attributable to some agroforestry species cultivated according to the short rotation coppice technique. Although these species are able of enhancing abandoned or marginal land leading to numerous environmental benefits, an increasing number of farmers are introducing them in place of agricultural crops. Therefore, since for a farmer economic sustainability is one of the main factors to introduce a biomass crop, the study aimed at evaluating the profitability of Paulownia, a species that has been spreading in recent years. In particular, an economic analysis has been carried out in a Southern Italian farm in which Paulownia has recently replaced a vineyard, by adopting a discounted cash flow approach. The results show that the Paulownia for both timber and woodchip production, with an annual gross margin equal to 357.91 € ha−1, can represent a valid alternative compared to wine grape (237.41 € ha−1), while Paulownia for exclusively biomass production has almost zero profitability (4.22 € ha−1). However, the profitability depends not only on the product typology but also on the future market price fluctuations, on the subsidies or incentives, as well as on adequate choices by entrepreneurs for the creation of sustainable supply chains also from an environmental and social point of view.

Earning Management and Financial Performance in Real Estate Company in Indonesia

Earning management is a practice by the management to convince the stakeholders and to maintain a firm reputation by modifying or manipulating financial statements. This practice brings positive and negative impacts to firm performance. Although earning management was allegedly made by the managers to enhance financial reporting strategies and provide a positive opinion of the business, this practice would reduce the quality of the financial statements. Such reasons as financial distress and high competition are the name of few that the management manipulates financial statements. In addition to this, the study examines the effect of earnings management towards return on asset and market value in the company in Indonesia. The quantitative method was used to measure variables of the study and the data was taken from real estate and property companies that listed on the Indonesian stock exchange. The study finds that two indicators of earning management namely, total accrual (balance sheet approach and cash flow approach) have a significant effect on return on asset and market value. In addition to this, neither increase nor decrease on balance sheet approach and cash flow approach give the effect on firm performance Thus, practice on earning management play roles to the firm performance. In addition to this, the study provides the insight of earning management practice in the company as the contribution of the study