Value Of Cash Flows Research Articles

Математичне моделювання динаміки страхової компанії на основі макропоказників

In the paper we investigate the dynamics of a life insurance company depending on changes in macro indicators. For the sensitivity study, profitability testing is performed for the average life insurance contract. Profitability testing is based on an estimate of the expected present value of future cash flows. Various approaches to the choice of discount rates are investigated. The choice of strategy for using the rates of the zero-coupon yield curve built on the UAH domestic government bonds is substantiated. The dependence of the zero-coupon yield curve on the change in the key rate is shown. The dynamics of the model at different levels of the interest rates, namely guaranteed investment income, average profitability of investment activity, key rate, is considered. The scenario of the predicted decrease in the key rate at the stage of post-war reconstruction of Ukraine is considered. The profitability of the insurance company was tested based on the macro parameters of the specified scenarios. The expediency of using the chosen approach for researching the dynamics of a life insurance company in the conditions of the current high volatility of the Ukrainian economy is shown.

A synthesized distribution model: Asymmetric information, agency problem, and intertemporal optimization

A firm’s policy of distribution over current and future time periods influences the capital structure of the firm and its profitability. Managers decide on the amount of effort input in such a context of financial structure to maximize their utility. Nevertheless, shareholders’ preferred distribution of income is determined by the goal of corporate value maximization. The study aims to reach an optimal level of income distribution and reinvestment over current and future periods in which both the manager’s utility and shareholders’ corporate value have been maximized. The study adopts Lagrange’s multipliers method and the discounted cash flow valuation model of corporate value maximization. By processing a method of mathematical deduction and optimization, the study aims to reach an optimal equilibrium level of the dividend distribution model and explore key factors in the model for the determination of the distribution of income. As a result, the study concluded an optimal dividend distribution model, in which six factors jointly determine a theoretical equilibrium of optimization. These factors consist of the capital structure of the firm, the tax shield from debt financing, the growth rate of the dividend, dividend tax, the investment strategy of the principal, and the cost of capital.

Should One Assume the Discount Rate to Be One of the Risk Factors?

The Monte Carlo simulation is the ultimate solution for considering nearly all possible scenarios in presumably any discounted cash flow valuation. This paper argues that a discount rate expresses an investor’s current requirement and should be respectively perceived as a parameter only. The consequences of qualifying a required rate of return (a discount rate) as a risk factor in a discounted cash flow valuation are described in the paper using a free cash flow financial model of an asset being a hypothetical publicly traded enterprise. The case study is a discounted cash flow valuation using the Monte Carlo simulation for risk analysis. The various sets of assumptions are considered to explain the consequences of qualifying a required rate of return in a discounted cash flow model as a risk factor. As indicated in the paper, the discount rate as an additional risk factor with an attributed probability distribution increases the volatility of a risk variable, then the distribution of a risk variable becomes more flattened. In previous studies, some authors indicated that a discount rate could be considered a risk factor in the Monte Carlo simulation (Krysiak 2000; Damodaran 2018).

The Black Scholes Model and Discounted Cash Flow Valuation

The Black Scholes Model and Discounted Cash Flow Valuation

Effect of Corporate Governance Mechanism and Operating Cash Flow on Financial Distress

This study aims to examine the effect of corporate governance mechanisms and operating cash flows on financial distress. The variable of corporate governance mechanism is measured through managerial ownership, institutional ownership, and audit committee. Managerial ownership can reduce conflicts of interest between principals and agents, while institutional ownership and audit committees are related to increasing supervision over company management. So, a good corporate governance mechanism can avoid financial distress. The adequacy of operating cash flow also greatly affects the efficiency and effectiveness of the company's operational activities. If the company has a negative operating cash flow, it will greatly hamper the company's operational activities. Companies can experience financial distress. This study uses data from manufacturing companies that have negative EBIT values ​​for two years from three years of observation in 2017-2019 as the research sample. This study uses the SEM-PLS analysis tool to answer the proposed hypothesis. The results showed that managerial ownership, institutional ownership, and audit committee had no significant effect on financial distress while operating cash flow negatively significantly effect of financial distress. The greater the operating cash flow value, the smaller the possibility of the company experiencing financial distress. Conversely, the smaller the operating cash flow value, the greater possibility of the company experiencing financial distress.

An Empirical Analysis of the Valuation Methods of Unlisted Companies in Stock Exchanges

This paper investigates the method for evaluating unlisted companies in stock exchanges via the discounted cash flow (DCF) valuation method. This method seeks to determine the company's value by estimating the cash flows it will generate in the future and then discounting them at a discount rate matched to the flows' risk. Nowadays, this method is generally used because it is the only conceptually correct valuation method. The study was conducted on companies in the Spanish olive oil industry during the period 2005-2020. The results suggest two values for valuing private companies: static and dynamic value. Both values are calculated based on the sum of the updated cash value plus the remaining value. Static value provides only one value, while dynamic provides a range of values, resulting in a more accurate understanding of a company's value and a better understanding of the risks associated with that value. Therefore, the company is considered a generator of cash flows, and the value of the company is determined by calculating the present value of these flows using an appropriate discount rate. The results show that determining the discount rate is one of the most important tasks given risk and historical volatility. In practice, the minimum discount rate is usually set by the relevant parties. Keywords: Cash Flow Discounted; Companies Unquoted; Valuation methods.

Determining the Moral Depreciation Function of Railway Vehicles in Market Economy Conditions: A Review

In this paper we have studied the necessity of determining the moral consumption (obsolescence) of wagons and locomotives in the conditions of market economy. In this case it has resulted that moral consumption should be determined by comparing the actual value of cash flows related to the operation of the object to be evaluated and the new analog object, for their term service. For this purpose we have determined the factors that affect the obsolescence of locomotives for freight transport. In the paper mathematical models has been employed and combined to arise to an equation able to determine the moral depreciation.
 
 Received: 20 September 2022 / Accepted: 22 November 2022 / Published: 20 December 2022

A Case Study on Valuation of Tata Motors Ltd.

In this case study, the fundamental value of Tata Motors has been calculated using one of the most popular techniques of valuation, Discounted Cash Flow Valuation. Ravi Nigam, who is an equity analyst has been given the task to calculate the value of Tata Motors. The first step taken to calculate the value was to prepare the forecasted income statement and balance sheet. In order to do so, the first task was to forecast the sales of Tata Motors for the next coming five years. On the basis of forecasted sales, various items of expenses like the cost of goods sold and selling, general & administrative expenses were forecasted. Subsequently, Free Cash Flow to the Firm was calculated which was discounted by a weighted average of the cost of capital to arrive at the present value of Tata Motors. The terminal value and its present value has been also calculated to complete the valuation process.

The fundamental-to-market ratio and the value premium decline

Recent evidence indicates the value premium declined over time. We argue this decline happened because book equity, BE, is no longer a good proxy for fundamental equity, FE, defined as the present value of cash flows under a common discount rate across firms. Specifically, we estimate FE for public US firms over time and find that the premium associated with the fundamental-to-market ratio, FE/ME, subsumes the BE/ME premium and has been relatively stable while the cross-sectional correlation between FE/ME and BE/ME decreased over time, inducing an apparent decline in the value premium. We also show that FE/ME captures the value premium better than several alternative value signals beyond BE/ME.

Compressing Natural Gas - Carbon Capture - EOR (CAGAR) Innovation: Cost Effective Sustainable Flare Gas Utilization to Boost Oil Production

Drilling natural gas (CNG) is a promising environmentally friendly gasoline substitute. It is produced at a reasonable price. Flaring, on the other hand, emits 300 million tons of CO2 into the environment wasting vital energy resources. As a result, rather than releasing CO2 into the atmosphere, it is used to boost oil production as a CO2 EOR to fulfill global oil demand that continues to rise. To achieve a sustainable oil and gas production by reducing greenhouse gasses (GHG) through flaring reduction innovations comprising gas purification and carbon capture that utilizes the associated gas as a viable compressed natural gas (CNG) and enhanced the oil recovery. Natural gas linked with crude oil (CH4 dominated) is processed in two units. The first one is a gas purification unit where natural gas is purified in compressor, Acid Gas Removal Unit (AGRU), dehydration unit, and hydrocarbon recovery producing viable CNG. In the flaring unit gas is burned converting the CH4 to CO2. Flared gas is captured in a Carbon Capture Storage (CCS). Furthermore, CO2 is centralized in the EOR-System to be injected into the reservoir as CO2-EOR by interacting with oil causing oil to swell and reduce its viscosity leading to oil flow easier through the pores. This research elucidates that CAGAR could produce 2,970 mmbtu/d of CNG. Beside producing profitable products, CAGAR also boosted oil production by adding an extra 21,369.6 bbl/d oil recovery. According to the results, the production of the CAGAR method of flare gas utilization is the most economical technology with an annual sales from oil recovery and CNG of 455,768,373 USD so that CAGAR get a profit before tax of 248,288,632.81 USD and a profit after tax of 207,479,740.57 USD with a parameter calculation is a positive NPV, IRR of 30.26% including the cash flow and present value start to be positive in the 3rd year when the system starts operating. CAGAR has a payback period of 2.7 years. Technical and economic analysis shows there improved oil recovery and improved environmental protection. So it can be concluded that CAGAR has good prospects and deserves to be implemented.

Time Value of Money Application for the Asymmetric Distribution of Payments and Facts of Economic Life

This article is devoted to the applied aspects of using the concept of the time value of money for the purpose of determining the present value of cash flows in conditions of asymmetric distribution of payments and facts of economic life over time. Currently, such situation is standard when doing business and should be thoroughly studied. The purpose of the study is to prove that the method of distribution of payments affects the result of discounting, and that this information is essential when making management decisions and should be disclosed to the user of the information. Based on the basic provisions of the theory of the time value of money and analyzing the specifics of the asymmetric distribution of the described events, the authors come to the conclusion that it is necessary to supplement the cost discounting methodology by including in it a description of the basic approaches to distribution. As such approaches, the use of distribution methods that were called First Payment First Sale (FPFS), First Payment Last Sale (FPLS), and Current Payment Current Sale (CPCS) are proposed. Use of these methods in certain calculations is the main novelty of this article. The difference that arises as a result of the use of different approaches to assessment in the conditions of asymmetric distribution is illustrated with the simulated data. Taking into account a specific approach to the distribution of cash flows leads to a better understanding of the basis for discounting indicators, improves the quality of information and the validity of management decisions based on it, and reduces the risks of choosing the wrong financing strategy.

Turberaied ja nende ökonoomiline hindamine pohla kasvukohatüübi männiku näitel

Abstract The article provides an overview of the experience of using shelterwood systems in Estonia and the methodological aspects of their economic assessment. The methodology is tested with calculations made on the management alternatives of pine (Pinus sylvestris L.) stand in Rhodococcum site type. Based on the Estonian forest management rules and the results of previous silvicultural studies, the management models were elaborated for different types of shelterwood harvesting. The difference model was used when predicting stand development, the actual prices of different wood assortments and the actual cost of management activities were used in calculations. The net present value of cash flows is used as a criterion, which allows comparing management periods of different lengths. Calculations were performed for three different periods: one regeneration felling cycle, two regeneration felling cycles and perpetual management cycles. The results of different types of shelterwood systems are compared with the results of clear-cutting scenarios. The calculations indicate that in the short term, the net present value of the different types of shelterwood harvesting and clear-cutting are quite similar. The results of the first cycle of regeneration felling are most affected by the costs of cultivation and tending of a plantation and young forest. In the long run, clear-cutting will have an advantage over shelterwood harvesting, as the stand regeneration period is shorter.

Financial sensitivity analysis of small lodging establishments during COVID-19

PurposeThe main stance of this paper is to draw an authentic and rigorous outlook in terms of the financial and operational performance of small lodging establishments (SLEs) and put forth achievable and practical economic solutions that demonstrate the relative effectiveness of the adopted measures. This paper also suggests practical solutions to help minimize SLEs' financial vulnerability to long-term crisis and to boost their resilience with relative measures by applying recovery revival strategies for this particular segment of the lodging industry.Design/methodology/approachThe authors have picked a locally owned resort hotel in Central Florida area and structured a real-life, case study-based inductive approach that is purposeful and offers rich economic outlook and analysis for the entire lodging industry, especially for the resort-hotel type of accommodation facilities. The main reason for why they only focus on one company is that they can fully understand the financial effects of COVID-19 on resort type of hotels and layout countering strategies. To achieve paper objectives, they have implemented cost–benefit (C–B), break-even (B-E) analyses along with a sensitivity testing approach.FindingsThe most striking result was that during the state-mandated shutdown period in 2020, overhead and overall operational costs associated with room sales and revenues were very high during this period that shrank the contribution margin ratio for rooms CMRw (room) and eventually yielded high sales volumes to be achieved at the B-E points vs lower sales volumes with almost the same average daily rate (ADR) levels needed for the B-E levels.Research limitations/implicationsFuture studies should specifically delve further into a portfolio of SLEs in the region or state or nation wise because the units comprising the SLEs might be too small to muster the changes required to bounce forward for the entire lodging industry in the world.Practical implicationsThe resort's revenue re-optimization focus should center on financial re-benchmarking and business re-viability stress under different levels of shock scenarios. According to the different scenarios and calibrations for the ADRs, room nights, net present values (NPVs) of cash flows and profit margins derived from our main analyses, minimizing expenses and preserving cash would be the best key strategy for financial recovery during an ongoing COVID-19 pandemic.Originality/valueIt is obvious that the lodging, hospitality and tourism industry are the hardest-hit industries by the harsh and adverse effects of COVID-19. The effects of pandemic are differently shaped on operations in different industries and subsectors. Therefore, the operational and financial evaluation for the SLEs as the core and a catalyst in the entire lodging industry can shed a light on the strategic financial recovery procedures with broadly applicable real-life and endogenous capabilities and reasoning.

Pengaruh Arus Kas Investasi, Arus Kas Operasi, dan Market Value Added Terhadap Return Saham

This study aims to determine the effect of investment cash flow, operating cash flow and market value added on stock returns. The data used is secondary data, using quantitative methods and panel data regression models with the help of the eviews 10 program to obtain a comprehensive picture of the relationship between one variable and another. The sample in this study consisted of 26 property and real estate sub-sector companies listed on the Indonesia Stock Exchange for 5 years from 2016-2020 with purposive sampling as the sampling method. The results showed that the variables of Investment Cash Flow and Operating Cash Flow had a significant effect on stock returns partially at the level of significance less than 0.05. Meanwhile, Market Value Added does not have a significant effect partially.

Monte Carlo simulation of present value of cash flows

This paper is concerned with financial application of Monte Carlo simulation of infinite series. In fact, present value of a cash flow is represented as infinite series. Hence, the Monte Carlo may be applied to approximate the present value. It is seen that the Monte Carlo method is sample approximation of the mean of cash flow computed at a stopping time. The stopping time, first, is considered as an up-crossing time point of sequence of uniform random variables and then it is replaced by up-crossing of macro-economic variables (called as factor) which brings the dependency structure to the problem which is modeled by auto-regressive to any things (ARTA) models. Here, two different Monte Carlo simulation methods are presented. A financial application is also given. Continuous time extensions of results are also proposed. Finally, a concluding remark section is given.

Viability of Point of Care Ultrasound screening in Primary Health Care Setting: A Kenyan Experience

The limited number of sonographers in developing countries and high cost of conventional obstetric ultrasound screening services has led to only 6.9 percent of pregnant women accessing the service in rural areas. It is a World Health Organization (WHO) requirement to have pregnant women access obstetric ultrasound screening before 24 weeks gestation. This led to Amref International University piloting a business model that can make point of care obstetric ultrasound screening (POCUS) affordable and sustainable. One-year post intervention, an evaluation survey got conducted in the project sites in two pilot counties in Kenya (Kajiado and Kisii counties) to establish the viability of the entrepreneurship driven implementation of POCUS. Two stage cluster sampling was employed with mixed methods of data collection. A sample of 33 Midwives and 196 women of reproductive age from the pilot sites participated in the evaluation. The survey findings were that midst the COVID-19 pandemic, a total of 1250 pregnant women were screened in one year at a fee of USD 5 per scan. Among those interviewed, 168 (85.7%) of the women confirmed the service was affordable and easily accessible. It emerged that 85 (43.4%) of the respondents were screened by midwives in local health centres. Notably,180 (91%) of the women interviewed recommended scaling up of the service and 32 (96%) of the midwives reported that the continuous coaching from radiographers enhanced skills acquisition. Despite the marginal negative net present value of cash flows, the impact generated by the project was of high significance. The conclusion drawn was that the business model is viable from implementation perspective since it demonstrated the potential to reach a Break-Even Point (BEP) at a modest of 1833 ultrasound scans per year. The project has potential for further buy-in by Primary health care professionals having accorded them a gross margin of 60% with a probable increase to 80% in subsequent years. Further, Obstetric Ultrasound screening services can be provided sustainably at low cost by trained Primary Health Care Workers (PHCWs). Financial viability of the POCUS is subject to increasing pregnant women’s access to POCUS.

The Impact of Applying Corporate Governance on Firm Value from the Perspective of the Cost of Capital: An Applied Study on the Egyptian Stock Market

This research aims to identify the impact of the application of corporate governance on the value of the enterprise from the perspective of the cost of capital through an applied study, and to identify the concept, objectives and advantages of applying corporate governance as well as accounting principles and mechanisms, and also the impact of corporate governance on disclosure and transparency, and the importance and mechanism of quality disclosure and transparency In light of corporate governance, and to identify disclosure and transparency and their impact on the cost of capital through knowledge of the elements of the cost of capital, the relationship between transparency and the cost of capital, and approaches to studying the relationship between the degree of information transparency and the cost of capital, which is divided into the direct approach to studying the relationship between the degree of information transparency And the cost of capital – the indirect approach to studying the relationship between the degree of information transparency and the cost of capital, as well as analyzing the value of the enterprise in the light of the impact of the cost of capital through the approaches to measuring the value of the enterprise, which are divided into the book entry the market entrance – the discounted cash flows entrance. The study concluded that the importance of the cost of capital is due to its direct impact on maximizing the value of the enterprise, and it also entails many financial decisions taken by the management, such as using it when calculating the present value of net cash flows as a basis for differentiating between available investment projects. The study recommends the need to develop and spread awareness of transparency among preparers and users of financial statements and reports, as well as the need to encourage investors to deal with financial analysts to follow up on the activities of the facility and provide investors with information, which may reduce information asymmetry.

Integrated Ultra Low Invasion–Nanoparticles Drilling Fluid (ULIN): Drilling Additives with Low Environmental Impact as Innovation to Solve Common Drilling Issues

Drilling issues is extremely costly and a smart additives selection could be one of the ways to cope with these issues. Integrated Ultra Low Invasion–Nanoparticles Drilling Fluid (ULIN) purpose to overcome common drilling problems such as formation instability, differential sticking, lost circulation, and clay swelling by minimizing the invasion through environmentally safe drilling fluid additives. Ultra Low-Invasion produces a thin, deformable, yet robust shield that serves as the foundation for a low-permeability barrier at the formation's face, temporarily sealing pore throats. This seal forms after only a few seconds of invasion and has been demonstrated in laboratory experiments to be exceedingly effective at essentially inhibiting future fluid invasion or pressure transmission. On the other hand, nanoparticles drilling fluid inhibiting shales by either plugging pore in shales, viscosifying water in drilling fluids, and or osmotically dehydrating shales. It has a very high surface area to volume ratio resulting in improved physical and chemical sensitivity, boosting their performance efficiency. ULIN has exceeded the original oil production with an additional 1,800 BOPD produced by 11 wells. It also reduces the formation damage up to 93% from 64.3% to 4.5% in Naricual Formation. ULIN is safe for the environment while it can inhibit the reactive montmorillonite shales, declining rheology dropping back, controlling fluid loss amount and lubricity enhancement. Parameter of the feasibility of establishing a factory using economic analysis with an annual sales of 37,449,000 USD, and ULIN get a profit before tax of 23,108,266.89 USD and a profit after tax of 14,340,733.11 USD with a parameter calculation is a positive NPV, IRR of 40.01% including the cash flow and present value start to be positive in the 3rd year when the system starts operating. ULIN has a payback period of 4.3 years. From the result of the analysis, it can be concluded that ULIN has good prospects and deserves to be implemented.

Tembo Global Industries Limited – financing dilemma for the COVID-19 project

Research methodology The case proposes a discussion of the time value of money and capital budgeting concepts, including determining the effective overall cost of capital, estimating working capital requirements, consideration of all relevant cash flows – including opportunity costs, finding the present value of future cash flows (annuities and lump-sum cash flows) by linking the concepts of weighted average cost of capital and working capital and net present value (NPV) and internal rate of return (IRR). Case overview/synopsis Jehan Wadia, a newly appointed finance manager of Tembo Global Industries Ltd., is facing a dilemma in recommending an investment decision to Mr Variava, Chief Finance Officer. Implementation of the project requires an investment of INR 82m. Ms Stella, funding division head, proposed financing through equity and term loans in the proportion of 3:2, respectively. Mr Shrinivasan, handling the short-term financial needs of the firm, suggested a finance mix having a higher weight-age of debt. Mr Variava desires to maximize the wealth by taping the opportunity. The case is written for an experience in the capital budgeting dichotomy faced by managers in real-life situations. Complexity academic level This case can be used in various contexts – as a preparatory case in a foundation course of Financial Management at the graduate level to instill the fundamentals for evaluating long-term investment decisions or in courses of Strategic Financial Management or Corporate Finance at the undergraduate or graduate level as a capstone case to reinforce the application of multiple concepts in strategic financial decision making.

STRATEGIC ADVERTISING MANAGEMENT DURING THE PRODUCT LIFE CYCLE

The subject of the research is the development of a strategy for optimal management of the company's advertising expenditures when promoting a new product to the market throughout its entire life cycle. To model the sales dynamics of a new product, the article proposes a modification of the Bass diffusion of innovations model, which makes it possible to numerically simulate the impact of advertising expenditures on the intensity of sales of the two groups of consumers identified in the model, namely innovators and imitators. The problem of optimal control of advertising expenditures for product promotion throughout its entire life cycle is formulated. As an optimality criterion, the expected net present value of cash flows from the sale of the product is chosen. It is shown how to solve this problem by means of dynamic programming techniques. An algorithm for numerical search for the optimal control program of advertising expenditures based on the method of contraction mapping has been developed and implemented. As a result of the algorithm, the optimal level of advertising expenditures is established in the form of a law with feedback, where the degree of market saturation acts as a state variable of the system. On this basis, one can find the optimal level of advertising expenditures in each time period and compare sales trajectories with different advertising strategies. Two cases of advertising aimed at innovators and imitators were studied separately. Numerical experiments were carried out, on the basis of which the qualitative characteristics of the strategy for optimal control of advertising expenditures for these two cases were determined. The influence of the chosen management strategy on the form and duration of the product life cycle has been studied. Conclusions are drawn about the comparative economic efficiency of various advertising management strategies. Optimization of the advertising budget using the developed methodology allows enterprises to check whether the planned level of advertising spending is excessive or insufficient. The application of the methodology allows not only to find the optimal size of advertising expenditures depending on the stage of the product life cycle, but also to predict sales and profits for future periods.