Cash Flow Model Research Articles

A Monte Carlo simulation case study on blueberries from Mexico

Abstract Global blueberry production more than doubled during the last decade. In Mexico, the production of this fruit has grown faster than globally, positioning this country among the top five international blueberry-producing regions. This case study focuses on a prospective investor planning to grow blueberries in Mexico and export most production to the U.S., the largest producer and consumer of fresh blueberries. A high-technology producer growing blueberries under high tunnels in western Mexico is featured in this article. The case study was researched using a combination of field visits to blueberry producers, collaborative work with an industry consultant, and academic research. The article provides industry statistics on blueberries in Mexico and globally over the last decade. In addition, it describes how the authors conceptualized and developed discounted cash flow models to evaluate this potential investment. Despite the importance of blueberries from Mexico, there is a need for financial models to assess the profitability and risk of growing blueberries in that country. Students solving this case are expected to identify risks and opportunities in the industry and conduct Porter’s five forces competitive analysis. In addition, students will mainly evaluate the results of a stochastic capital budgeting model.

Which Stocks Are Worth Holding in the Electric Vehicle Market?

In this paper, the research first reviews the definition of some economic targets and the model used to help evaluate the stocks. Then, it continues to focus on quantitative analysis, which includes Du Pont analysis, Comparable Company Model, and Discounted Cash Flow Model. At the end of the analysis, the data will be summarized, and the valuations of the stocks can be calculated. The research objectives are concluded after evaluating all factors that influence these stocks. Then, the answers to the research questions will be revealed to the readers. Finally, the disadvantages and shortages of this research are also discussed.

Modeling of cash flows from foreign economic activity: Scenario analysis

The prerequisite for the scientific research on this topic is the need to form an economic-mathematical model that would make it possible to predict and simulate the financial flow of the company to provide construction services in time. The aim of the scientific article is to carry out economic and mathematical modeling of the financial flow for the provision of services in time on the example of the project of the company “STROITEL12” JSC. In the demonstrated example, the situation was considered, in which the organization performed design work for 2 years and construction work for 4 years in a foreign country in the framework of the creation of the subway (station + track + station improvement) in Turkey, in the city of Izmir. According to Rosstat, the forecast inflation rate amounted to 5%. The implementation of this project led to the fact that the staff of “STROITEL12” received a reward for the completion of the project ahead of schedule. After the application of the economic-mathematical model in the formation of the financial flow, the employees of the company were more diligent to their work, as their salaries increased. The novelty of scientific research is the application of economic-mathematical model for modeling the cash flows from foreign economic activity of the organization.

Further Enhancement to the Takahashi and Alexander's Cash Flow Model

Further Enhancement to the Takahashi and Alexander's Cash Flow Model

Enhancement to the Takahashi and Alexander's Cash Flow Model

Enhancement to the Takahashi and Alexander's Cash Flow Model

Liquidity risk and market value of insurance companies in Nigeria

The study examines the market value effect of liquidity risk of insurance companies in Nigeria. Liquidity risk has caused market value related problems and even insolvencies in the Nigeria insurance industry in the past and it remains a key risk for insurance companies to manage it now and in the future. Twenty seven (27) quoted insurance companies were used in the study. Ex-post facto research design method was also employed while the panel data were sourced from the Securities and Exchange Commission (SEC) Statistical Bulletin, Nigerian Stock Exchange (NSE) and Audited Annual Financial Reports of the studied companies from 2004 to 2023. This research adopts stationarity test, cointegration test, and pooled least squares regression test methods. The finding shows that there are significant influences of liquidity ratio, leverage ratio and firm size on market value of insurance companies in Nigeria (p = 0.0000, 0.0019 & 0.0000 < 0.05). This study concludes that there is a significant market value effect of liquidity risk of insurance companies in Nigeria. Insurance companies should have enough cash to meet their obligations both in short run and long run. There is need for regular cash flow modeling, which can project potential liquidity needs from the liability side of the balance sheet. Also, a liquidity-adjusted assets analysis can be applied to asset positions to estimate the cost of supplying liquidity from the asset side of the balance sheet to match those liability cash flow needs.

Earnings quality and national IPO: Central Asian case

Object: The study aims to assess the impact of the National IPO/SPO Program on Earnings quality in KASE-listed companies and provide recommendations to the investor community.Methods: KASE Stock Exchange sample population is 52 local companies, 26 state and 26 private, across different industries excluding financial institutions and investment holdings. Time horizon is 13 years during 2009‒2021 period totaling 572 unbalanced panel firm-year observations. To estimate Earnings quality, we follow (Kasznik, 1999) cash flow model for accrual based Earnings management jointly with real activity (Roychowdhury, 2006) aggregate model.Findings: We found that the National IPO/SPO process creates partial state-owned enterprises and improve their key investment indicators.Conclusions: Partially state-owned companies outperform private ones and thus become the preferable investment strategy based on Earnings quality risk, cash generation, profitability and leverage-based risk. Theoretically, this study is the first to analyze Earnings management from the National IPO/SPO perspective and the first to relate Earnings quality with structure ownership in case of Kazakhstan. Practically, results and discussion are useful for investors of KASE-listed companies in investment decision making.

A note on free cashflow analysis: Theory versus practice

AbstractIn this note, we compare the methodologies in academic textbooks and the CFA practitioner's guide while demonstrating which academic approach provides the most consistent valuation metric with practitioners. There are many differences when it comes to the items or approaches considered for free cash flow calculations. Some differences, however, are related to the purpose of the calculated free cash flow, for example, the actual free cash flow a company generates during a certain year versus the free cash flow for firm valuation purposes. This note attempts to address this gap and may serve as a guide to faculty as well as practitioners. In what follows, different expositions of the free cash flow model are explored and compared.

Venture Capital Funding and Early-Stage Startup Performance

This paper explores the significance of team composition, market valuation, and deal structure in venture capital (VC) investments. The research highlights that the success of a startup is heavily influenced by the skill, knowledge, and dedication of the founding team. Additionally, market valuation plays a crucial role in determining the expected return on investment for venture capitalists. Various valuation methods, such as the discounted cash flow model and the Berkus method, are discussed to aid in the assessment of a startup's future prospects. Furthermore, the paper emphasizes the importance of a solid transaction structure, which includes equity, voting rights, and clear responsibilities for both parties involved. A strong transaction structure aligns the objectives of venture capitalists and startups, encourages rapid development, and reduces conflicts. Case studies of successful VC investments, such as Airbnb and Uber, are presented to illustrate how team composition, market valuation, and deal structure contribute to their growth and success. Overall, this research provides valuable insights into the factors that influence VC investments and their implications for startup success, investment performance, and economic development.

The relationship between profitability and cash flow in Jordanian banks

The relevance of this study lies in the importance of the two variables – profitability and cash flow – for the financial performance of banks, as well as the unique characteristics of the Jordanian banking sector. The purpose of the study is to investigate whether there is a significant relationship between profitability and cash flow in Jordanian banks and to identify potential factors that influence this relationship. The study methods are to employ a quantitative research method, using financial data from Jordanian banks over a period (2008–2019), Granger causality tests are used to describe the link between cash flow and profitability. The study results show a significant link between profitability and cash flow in Jordanian banks. Specifically, the study finds that a one percent increase in cash flow results in a 0.27 percent increase in profitability. The Adj-R2 for the three cash flow models is 11.4%, 17.3%, and 20.4%, respectively. Conversely, the Adj-R2 for the three models’ earnings are 21.4%, 21.5%, and 22.3%, respectively. However, the magnitude of the link seems to be weaker in Jordanian banks compared to banks in other countries. The study concludes that cash flow from operating is an important factor in improving the profitability of Jordanian banks.

Bi-objective Optimization for Resource-constrained Robust Construction Project Scheduling

Construction projects are often executed in complex environments, and various uncertain factors (e.g., bad weather, machine breakdown) prolong activity duration in practice, which may cause project completion delays or profit reduction. Moreover, previous studies often optimized net present value or robustness in project scheduling separately, they neglected the linkage between the value of obtaining NPV and the capacity of tackling uncertainties in a project schedule. To achieve optimal profit and enhance the stability of a project schedule simultaneously, this study proposes a bi-objective optimization for resource-constrained robust construction project scheduling problem (RCRCPSP), which aims at optimizing NPV and robustness, and builds a bi-objective optimization model for the RCRCPSP based on five typical cash flow models. Then an ε-constraints procedure embedded with a genetic algorithm is proposed to solve the model. The ε-constraints procedure performs better than the multi-objective genetic algorithm proposed by the previous study through case study. Furthermore, the findings demonstrate that a trade-off relationship exists between NPV and robustness, and cash flow models have little impact on robustness, while the relaxed deadline can improve a project schedule with high robustness. The fruits of this study can help contractors balance the NPV and the robustness in an indeterministic environment.

Application of DCF Model in Enterprise Valuation

The home appliances industry is an important manufacturing industry that reflects the consumption level of Chinese residents. Midea Group is the leading enterprise in the household appliances industry and one of the enterprises with high brand value in China. For Midea Group in the home appliance industry, this paper will apply the DCF model for enterprise valuation. This paper mainly uses the financial information of Midea Group and the discounted cash flow model for enterprise valuation. Then, the advantages and disadvantages of the DCF valuation model are analyzed through practical cases, and the overall valuation process is summarized. The company value of Media that valued by the DCF model is 384,922.89 million RMB. The analysis results show that the DCF model can better reflect the status quo of enterprise value, but in the process of DCF valuation model, it is not easy to predict the accurate amount of future cash flow. It also has limitations in industry and product selection, and its estimation of the risk rate is not accurate enough.

Evaluation of Offshore Project Development under Two Fiscal Regime in Indonesia

The general characteristics of deep water offshore field development are the uncertainty of geological conditions, high technology requirements and development costs, and volatility of oil and gas prices. Despite these challenges, the development of a deep water offshore field remains a strategic project for sustainable economic growth. This study will evaluate the impact of current fiscal of the three offshore field development and estimates the limits of oil and gas price, reserves, and expenses. The intention is to obtain the optimal conditions to encourage the development of new offshore fields. The approached will used a discounted cash flow modelling, followed by evaluate the profitability risk using deterministic and stochastic sensitivity analysis. Monte Carlo simulation used to take into account the uncertainty of several variables, such as oil and gas prices, operating costs, development costs, and reserves. The result shows that investment decisions for the development of new and/or extensions fields in offshore areas remain quite challenging economically, considering to the high development and operating costs, as well as fluctuating of oil and gas prices. The opportunity to obtain a positive net present value on new deep water offshore development fields is less than 41%, thus indicates that further initiative of cost efficiency and fiscal incentive is required in preparing investment planning of new deep water offshore field to compensate the high development and operational cost.

Assessment of the investment attractiveness of the cloud technologies industry

The cloud technology industry is one of the fundamentally important industries today, occupying an important place in the context of digital transformation due to the colossal increase in information. The process of digital transformation began not so long ago, but it has already become obvious that cloud computing has become a key factor in the rapid implementation of innovations in local and international markets. Increasing competition in the digital field forces international and local enterprises to take unprecedented steps to collect and analyze large amounts of data that users leave in the Internet space. This is what drives cloud providers to make huge capital investments in hardware and human capital.The purpose of the study is to analyze the current state of the cloud technology industry for making an investment decision. The article reveals the economic potential of the cloud technology industry, providing highlighted the key benefits of cloud computing that are accelerating the adoption rate of the technology and identified the major key players that make up the majority of the market. According to the results of the study, it was found that the most attractive country for investments in the field of cloud technologies is the USA, which, according to the criterion of the volume of investments in the industry, occupies a leading position, having a wide list of cloud service providers. Among the analyzed companies, in the context of the search for the optimal enterprise for investment, it was determined that Microsoft Corporation has the highest profitability ratios among existing enterprises in the industry, and financial risks are at a moderate level. During the implementation of the discounted cash flow model, it was found that the company’s shares have a stable growth potential. Based on the results of the study, it is proposed to combine two approaches to the analysis of existing alternative technologies for storing and processing large databases, identifying the nature of key financial risks and their negative impact on determining the final fair value of a share.
 JEL classіfіcatіon: G11, G24

Maximizing Returns and Minimizing Risks in Hybrid Renewable Energy Systems: A Stochastic Discounted Cash Flow Analysis of Wind and Photovoltaic Systems in Brazil

The use of renewable energy sources has become strategic in the production of electricity worldwide due to global efforts to increase energy efficiency and achieve a net zero carbon footprint. Hybrid systems can maximize stability and reduce costs by combining multiple energy sources. A conventional metric, such as the levelized cost of energy (LCOE), that is appropriate for assessing the cost-effectiveness of an option may not be appropriate when evaluating the economic feasibility of hybrid systems. This study proposes a stochastic discounted cash flow model (DCF) to assess the economic viability of a hybrid renewable energy system (HRES) in Brazil. The objective is to determine the combinations that will provide the highest 50th percentile internal rate of return (IRR) and the lowest coefficient of variation (CV). Model variables include capital expenditures (CAPEX), operation and maintenance (O&M) costs, sectoral charges, taxes, and long-term energy production metrics. The results demonstrate that the synergies modeled contributed to the higher economic outcomes for the HRES obtained by combining both energy sources rather than opting for a stand-alone configuration. A wind-dominant combination of 60% wind was able to increase the 50th percentile of the IRR, while a solar-dominant combination of 65% solar minimized the CV.

Projected Cash Flow Model by Activities for Decision Making in Private Companies in Peru

The objective of the research was to develop a projected cash flow model by activity, a situation that is not shown in traditional cash flows. The article uses a deterministic cash flow model based on the liquidity position at the date on which the financial statement is formulated, according to which the total cash flow, that is, the net change in cash, will be realized according to the balance of the Statement of Cash Flows, Operating Flows and the Investment Flows that may be present, although they are infrequent and at the same time are normal activities of a company. It also shows a contribution to the theories and practices is the expansion of knowledge in financial theory on cash resources, which were confirmed by the research and conclusions regarding the analysis of open capital companies in the emerging market. It was concluded that the analyzed model can form the basis for improving decision making and finance management in companies.

Application Analysis of DCF Model in Enterprise Value Evaluation: A Case Study of Midea

With the development of markets of household electric appliances and the extinct sales performance of Midea, Midea should be viewed as a good example to explore. Many company values are overstated or understated, which has caused major problems for the stability of markets. Therefore, the author made an effort to determine the company's value so that it could be compared to its market capitalization to determine whether it is underpriced or overpriced. And in order to do that, the company was examined using the discounted cash flow (DCF) model. It was discovered that the market price of Midea should be around 384.92 billion CNY, which is slightly higher than its actual market capitalisation. As a result, although there might be some deviations made by some other factors, that might indicate that Midea has been marginally underpriced in the market.

Discussion on the Advantages and Disadvantages of the DCF Model in the Current Era and the Improvement of the Model

The discounted cash flow model is a company value evaluation method widely used by many domestic investors when investing company. However, under the background of the epidemic, due to factors like low benchmark interest rates that are not conducive to the valuation of the DCF model, the accuracy of the discounted cash flow model valuation has been questioned. In addition, the DCF model is not entirely applicable to the domestic market because of the multiple systems and the local capital market's imperfections, so the model needs to be improved. In this paper, the existing literature is summarized, and it was found that the time series analysis method can be used, which can predict the company's future cash flow more accurately, instead of the sales ratio analysis method, while the discount rate can be calculated more accurately by substituting each company's beta into the calculation instead of using the company's industry beta.

The Valuation Analysis of NEXT.PLC based on the DCF Model

The discounted cash flow model (DCF) is also widely used to estimate the value of a company, and despite the simplicity of the DCF model, this valuation has certain drawbacks as the uncertainty of the estimate and the assumptions made when forecasting are not negligible. In this paper, financial information from NEXT.plc is used to carry out a business valuation and compare it with the current market capitalisation. The calculations lead to the conclusion that the original valuation performed by the DCF model is higher than the current market capitalisation of the company. The assumptions used in the valuation are subject to change with the actual economic environment, and therefore the results obtained are somewhat different from the actual. It is recommended that more understanding of the social and economic context be required when applying the DCF model to valuations.

Property Damage Assessment Methods and Models due to Armed Aggression

Abstract The paper deals with the conceptualization of the gross development value to assess direct damages and the restoration needs of lost, destroyed and damaged real estate as a result of armed aggression. A critical review of the existing practice of assessing property damage has been carried out. The measurement units of direct damages and the restoration needs, the evidence base used, the valuation methods for the determination of property damage are analyzed. The methodological potential of compounded cash flow models and the criteria for assessing their reliability is substantiated. A system of valuation models for calculating direct damages and restoration needs is proposed, depending on the category of real estate and market conditions at the valuation date. These valuation models are relatively simple to implement and understandable to the intended users of property damage valuation reports.