scholarly journals The effects of interest rates on the valuation of highway infrastructure assets

2018 ◽  
Author(s):  
Carles Vergara-Alert
Keyword(s):  
Interest Rates ◽  
Cash Flow ◽  
Discount Rate ◽  
Economic Activity ◽  
Cash Flows ◽  
Rate Effect ◽  
Toll Roads ◽  
Flow Effect ◽  
Positive Correlation ◽  
Highway Infrastructure

The discounted value of cash flows of assets is negatively related to interest rates (i.e., the discount rate effect). However, economic activity is positively related to interest rates and positively related to the cash flows of assets with tariffs that can be adjusted to manage demand such as adjustable-rate toll roads, but uncorrelated to assets that do not bear demand risk such as non-toll roads (i.e., the cash flow effect). This effect arises in some types of assets from: (i) the positive correlation between economic activity and demand for the infrastructure assets; and (ii) the positive correlation between economic activity and inflation. We find that the cash flow effect dominates the discount rate effect for assets with tariffs that can be adjusted to manage demand and, therefore, the value of these assets increases in periods of economic expansion. Nevertheless, the opposite occurs for assets that do not bear demand risk.

An Analysis of the Sources of Value Loss Following Financial Restatements

2021 ◽  
pp. 0148558X2198991
Author(s):  
Philip K. Hong ◽  
Jaywon Lee ◽  
Sang-Hyun Park ◽  
Sukesh Patro
Keyword(s):  
Stock Returns ◽  
Cash Flow ◽  
Discount Rate ◽  
Stock Price ◽  
Cash Flows ◽  
Financial Fraud ◽  
Earnings Persistence ◽  
Flow Component ◽  
Financial Restatements ◽  
Value Loss

We decompose the total value loss around firms’ announcements of financial restatements into components arising from investors’ revisions in cash flows and discount rates. First, relative to population benchmarks, restatements represent circumstances in which the cash flow component becomes more important in explaining valuations. While we find significant contributions from both sources, with the cash flow component explaining more than 33% of the variation in stock returns surrounding restatement announcements, this component explains only 13% to 22% in comparable non-restating firms. When restatements are caused by underlying financial fraud, the discount rate impact becomes more important, explaining about 88% of return variation. On the contrary, the cash flow impact is relatively larger for firms with higher earnings persistence or restatements associated with errors. Our decomposition of the value loss helps explain returns in the post-announcement period. Firms with a higher relative discount rate impact experience a significant downward stock price drift after the initial announcement-related price decline. For firms with a higher relative cash flow impact, the evidence suggests the initial impact of the restatement announcement is more complete with no subsequent drift pattern. Our findings close gaps in the evidence on financial restatements and extend the literature on the drivers of stock price movements.

Increasing the Efficiency of Industrial Enterprise Investment Projects through Cash Flow Management

2017 ◽  
Vol 2017 (2) ◽  
pp. 90-106
Author(s):  
Denis Shageev
Keyword(s):  
Cash Flow ◽  
Discount Rate ◽  
Cash Flows ◽  
Negative Influence ◽  
Positive Influence ◽  
Effective Management ◽  
Method Of Calculation ◽  
Investment Projects ◽  
Cash Flow Management ◽  
Actual Size

Objective and subjective factors of influence on the nominal and actual size of a cash flow of the project in the form of the scheme are opened. The analysis of method of calculation of a discount rate and award for risk is made. On analysis results, in article it was offered to exclude an indicator of an award for risk from a formula of calculation of a discount rate and to research it separately as the certain managed size influencing the nominal, but not actual size of cash flows of the project. It gave the chance to technically reduce value of a discount rate and by that to increase the NPV real value of the project. Designations of negative and positive factors project risks are entered. Availability and an opportunity positive influence of factors risks on the project is proved. The formulas of calculation of the modified cash flow, effect and effective management of cash flows of the project differing on structure, content and entering of the additional positive amendment on risk are offered. It will give the chance to reduce or eliminate negative influence of objective and subjective factors risks, and in certain cases and in addition to raise project NPV. For assessment of levels of effective management of cash flows the verbal scale is offered.

scholarly journals EFFECT OF INFORMATION ON ACCOUNTING PROFITS AND CASH FLOW COMPONENTS ON STOCK PRICES OF INSURANCE COMPANIES LISTED IN INDONESIA STOCK EXCHANGE (BEI) 2008-2012 PERIOD

2019 ◽  
Vol 15 (2) ◽  
pp. 171
Author(s):  
Nico Lukito ◽  
Kristian Chandra
Keyword(s):  
Interest Rates ◽  
Cash Flow ◽  
Stock Prices ◽  
Stock Exchange ◽  
Financial Statements ◽  
Cash Flows ◽  
Insurance Companies ◽  
Research Model ◽  
Accounting Earnings ◽  
Independent Variables

<p><em>Many factors influence the fluctuation of stock prices, including: deposit interest rates, stock trading volume, return on equity, earnings per share. The last two factors are part of the financial statements presented by the issuers. The financial statements contain accounting earnings information and cash flow. Therefore it is necessary to examine empirically whether accounting earnings and cash flows have an influence on changes in stock prices. Data is collected from the stock prices of insurance companies that have gone public in the Jakarta Stock Exchange which have a nominal value per share of Rp.1,000.00 (one thousand rupiah) from 2008 to 2012. This study took 10 existing insurance companies to analyze. The basis for this sampling is based on the amount of data available on the Jakarta Stock Exchange Website. From the results of variable analysis of total cash flow and accounting profit variables in the first equation individually can not significantly influence stock prices. And together all the independent variables have no effect simultaneously on stock prices. The value of Squared R is very low, which means that the variable cannot explain stock prices, but can be explained by other variables not included in the research model. Variable operational cash flows, investment cash flows and funding cash flows in the second equation individually can not influence stock prices significantly. And together all the independent variables have no effect simultaneously on stock prices. Also obtained is a very low R Squared value, which means that the variable cannot explain stock prices, but can be explained by other variables not included in the research model</em></p>

Liquidity, solvency and cash flow simulation models in non‐life insurance companies: the Italian experience

2004 ◽  
Vol 30 (5) ◽  
pp. 76-96 ◽  
Author(s):  
Fabiano Colombini ◽  
Simone Ceccarelli
Keyword(s):  
Interest Rates ◽  
Cash Flow ◽  
Life Insurance ◽  
Flow Simulation ◽  
Simulation Models ◽  
Cash Flows ◽  
Insurance Companies ◽  
Loss Reserve ◽  
Italian Experience ◽  
Inflation Rates

This paper discusses dynamic financial approaches to solvency analysis in non‐life insurance companies by explaining cash flow simulation models which are based on the planning of their typical cash inflows and outflows. Posits that these models take into account patterns of loss reserve run‐offs and asset cash flows by implementing several hypotheses that also include expectations about external economic conditions such as inflation rates and interest rates. Acknowledges the cash inflows and outflows have been planned over a period of time to evaluate how positive net cash flow (liquidity) leads to the increase in assets over liabilities (solvency).

scholarly journals Modern concept of interpretation of the cash flow economic essence and its classification

2021 ◽  
pp. 16-20
Author(s):  
Olha MATVIEIEVA ◽  
Olena KOSTIUNIK ◽  
Anastasiia TITARENKO
Keyword(s):  
Cash Flow ◽  
Economic Activity ◽  
Critical Analysis ◽  
Financial Stability ◽  
High Efficiency ◽  
Cash Flows ◽  
Modern Concept ◽  
Economic Entity ◽  
High Level

Introduction. At the present stage of economic development, it is impossible to imagine the activities of an economic entity in any industry without paying in cash. Today, the study of the nature of cash is one of the most promising, as increasing the efficiency of economic activity of the entity is based on maintaining its financial stability and maximizing profits, as well as the value of the entity, which is formed by organizing cash flows. Under the condition of controlling the constant movement of cash flows, businesses have the opportunity to provide a high level of economic potential. Thus, a critical analysis of the nature and classification of cash is not only relevant but also necessary. Purpose. As the concept of “cash” is not regulated at the legislative level, its essence and classification features can be explained in different ways. The purpose of the paper is to study the problems of economic essence and classification of funds, generalization and optimization of results. Results. A critical analysis of the economic essence of cash. The problems of economic essence of money and their classification are studied. The essence of the concept of “cash flow” is investigated. The results of critical analysis are generalized and optimized. Conclusion. We have the opportunity to draw the following conclusions: cash – liquid assets of the entity, including cash on hand, bank accounts, cash in transit, electronic money, deposits, etc., on which depends the financial potential of the entity, the prospect of achieving financial goals of any level and which guarantee solvency, financial stability and liquidity of the business entity; сash flows – is the economic process of receipt and expenditure of cash costs in identical and non-cash form, generated in the course of economic activity of the entity, distributed according to production needs in times and spaces to ensure solvency and high efficiency. Thus, a critical analysis of the nature and classification of cash in the process of organizing and conducting business activities, proved that the study of the nature of cash, their qualifications is not only relevant and necessary, but requires further research.

scholarly journals Determinants Of Firm Terminal Value: The Perspective Of North American And European Financial Analysts

2014 ◽  
Vol 13 (4) ◽  
pp. 793
Author(s):  
Pedro M. Nogueira Reis ◽  
Marion Gomes Augusto
Keyword(s):  
Cash Flow ◽  
Discount Rate ◽  
North American ◽  
Financial Analysts ◽  
Cash Flows ◽  
Free Cash Flow ◽  
Arbitrage Pricing Theory ◽  
Explicit Analysis ◽  
High Level ◽  
A Company

Company valuation models attempt to estimate the value of a company in two stages: (1) comprising of a period of explicit analysis and (2) based on unlimited production period of cash flows obtained through a mathematical approach of perpetuity, which is the terminal value. In general, these models, whether they belong to the Dividend Discount Model (DDM), the Discount Cash Flow (DCF), or RIM (Residual Income Models) group, discount one attribute (dividends, free cash flow, or results) to a given discount rate. This discount rate, obtained in most cases by the CAPM (Capital asset pricing model) or APT (Arbitrage pricing theory) allows including in the analysis the cost of invested capital based on the risk taking of the attributes. However, one cannot ignore that the second stage of valuation that is usually 53-80% of the company value (Berkman et al., 1998) and is loaded with uncertainties. In this context, particular attention is needed to estimate the value of this portion of the company, under penalty of the assessment producing a high level of error. Mindful of this concern, this study sought to collect the perception of European and North American financial analysts on the key features of the company that they believe contribute most to its value. For this feat, we used a survey with closed answers. From the analysis of 123 valid responses using factor analysis, the authors conclude that there is great importance attached (1) to the life expectancy of the company, (2) to liquidity and operating performance, (3) to innovation and ability to allocate resources to R&D, and (4) to management capacity and capital structure, in determining the value of a company or business in long term. These results contribute to our belief that we can formulate a model for valuating companies and businesses where the results to be obtained in the evaluations are as close as possible to those found in the stock market.

scholarly journals Discount rate selection for long-term sequential mineral projects

2017 ◽  
Vol 33 (3) ◽  
pp. 49-70 ◽  
Author(s):  
Piotr W. Saługa
Keyword(s):  
Economic Evaluation ◽  
Cash Flow ◽  
Discount Rate ◽  
Flow Analysis ◽  
Capital Intensity ◽  
Cash Flows ◽  
Time Varying ◽  
Discount Rates ◽  
Capital Costs

AbstractMineral projects depict various specific features that differentiate them from alternative investments in other industries. Among these features, one can specify unique characteristics of mineral deposits such as scarcity, geological setting and structure, resource/reserve uncertainty and depletability. Resource uncertainty results in the sequential nature of operations (exploration, development and production stages). Other specific features of mineral projects include long investment - and production periods, high capital intensity, varying production conditions, unpredictability and high volatility of mineral prices, etc. Specific features of mineral projects are sources of exceptionally high risks. To ensure the payback of high capital costs these significant risks must be addressed in the economic evaluation of a mineral project. In the discounted cash flow analysis, DCF, which is the most commonly used in evaluations of such ventures, all project uncertainties are reflected in a level of the discount rate used for the actualization of future cash flow values. The riskier project has a higher discount rate. Apart from being extremely high risk, mineral projects are both sequential and long-term - the first feature means that the extent of a project risk decreases dramatically over time, and second - that care should be taken when evaluating these projects because cash flows arising in later years of the project lifetime have little value. The paper delivers a proposal to apply the time-varying discount rate to the economic evaluation of a mineral project. The first part introduces a commonly accepted approach to evaluating discount rates along with conceptions of adjusting them to risks of individual projects. In the following sections, the article presents the current practice in the setting of discount rates for mineral projects and then a proposed modification of this approach by introducing the time-varying discount rate. In the end, a verification of the proposed suggestion based on a copper project example has been delivered.

Financial conditions and corporate investment: evidence from Vietnam

2017 ◽  
Vol 29 (2) ◽  
pp. 183-203 ◽  
Author(s):  
Nam Hoai Tran ◽  
Chi Dat Le
Keyword(s):  
Interest Rates ◽  
Cash Flow ◽  
Financial Frictions ◽  
Cash Flows ◽  
Capital Allocation ◽  
State Ownership ◽  
Financing Constraints ◽  
Corporate Financing ◽  
Content Type ◽  
Financial Conditions

Purpose This study aims to investigate the influence of macro-financial conditions on firm-level capital allocation as a micro-transmission mechanism of monetary policy in Vietnam. Design/methodology/approach The authors employ a dynamic model of investment based on the Euler equation approach that allows for financial frictions. The financial conditions are proxied by a composite index of the current states of financial variables, including interest rates, exchange rates, stock prices, and credit demand – which captures short-term shocks in monetary transmission channels. Corporate financing constraints, as a reflection of financial frictions, are measured by the sensitivity of investment to internal funds, which are extensively examined in terms of both negative and positive cash flows. Findings In the presence of a non-monotonic (or U-shaped) investment–cash flow relation, the empirical evidence from Vietnamese listed firms indicates that financial conditions affect investment behavior for only firms with negative cash flows, in the sense that better financial conditions alleviate the level of “negative” financing constraints (i.e. the sensitivity of investment to negative cash flow). This effect is greater for larger firms and more likely pronounced for firms without state ownership. Originality/value This study contributes to the literature on corporate financing constraints in a manner of considering the macroeconomic dimension, specifically exploring the asymmetric impacts of financial conditions on the investment sensitivity to cash flow.

scholarly journals CASH FLOW FORECASTING FOR INTERNATIONAL PROJECTS IN THE PROCESS OF CAPITAL BUDGETING DURING THE COVID-19

2020 ◽  
Author(s):  
Biljana Pejović ◽  
◽  
Dragana Trifunović ◽  
Aleksandra Živaljević ◽  
◽  
...  
Keyword(s):  
Cash Flow ◽  
Discount Rate ◽  
Cost Reduction ◽  
Capital Budgeting ◽  
Cash Flows ◽  
Country Risk ◽  
Cross Border ◽  
International Projects ◽  
Cash Flow Forecasting ◽  
Cash Flow Forecast

By predicting cash flows in the capital budgeting procedure, the profitability of an investment at the international level is determined in advance. Although investing globally provides greater opportunities for earnings, cost reduction and business diversification, all risks posed by international business must be considered when choosing a discount rate. In addition to the risks inherent in cross-border business such as exchange rate risk, country risk, the risks caused by the pandemic crisis, which relate primarily to measures taken by states to protect the population by introducing quarantine, restricting the flow of people, goods and capital, as well as activities that are endangered by a pandemic, must be considered too. If all the risks that determine the discount rate are well assessed, the cash flow forecast will be more accurate.

scholarly journals Separating Information About Cash Flows from Information About Risk in Losses

2020 ◽  
Author(s):  
Bin Li
Keyword(s):  
Cash Flow ◽  
Discount Rate ◽  
Cash Flows ◽  
Expected Returns ◽  
Forecast Revisions ◽  
Future Earnings ◽  
Earnings Response Coefficient ◽  
Earnings Response ◽  
Prior Literature ◽  
Discount Rate News

Prior literature interprets the weak earnings response coefficient (ERC) of accounting losses as a manifestation either of lack of forward-looking information in losses or of market mispricing of losses. Based on return decomposition theory, I predict that losses contain information not only about future cash flows (i.e., cash flow news) but also, about risk (i.e., expected returns and discount rate news). However, these informational components have offsetting valuation effects, resulting in a muted ERC. Consistent with the prediction, I show that, after controlling for information about risk (mainly expected returns), the ERC of losses becomes statistically significant with more negative returns for larger losses when returns are measured either annually or around earnings announcements. Moreover, loss firms will continue to have poor future earnings and operating cash flows, and larger losses are associated with more negative analyst forecast revisions in the loss-reporting year. I also document that losses provide more negative cash flow information when they are not because of research and development expensing, when they trigger operational curtailments, and when they are less likely to reverse to profits. Further tests confirm the robustness of my findings to considering future return drifts/reversals, alternative proxies for expected returns and discount rate news, alternative test portfolios, and alternative model specifications. Overall, my paper provides new insights into the information content of losses. This paper was accepted by Suraj Srinivasan, accounting.

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