Energy Sector Risk and Cost of Capital Assessment—Companies and Investors Perspective

Franc-Dąbrowska, Justyna; Mądra-Sawicka, Magdalena; Milewska, Anna

doi:10.3390/en14061613

Cited by 45 publications

(23 citation statements)

References 95 publications

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“…Results and methodology of the Brusov-Filatova-Orekhova (BFO) theory are wellknown in the world literature (for example, see references [15][16][17][18][19][20][21]). A few papers (see, for example, [21]) use the BFO theory in practical calculations.…”

Section: A Literature Review On the Evolution Of The Theory Of The Co...mentioning

confidence: 99%

Benefits of Advance Payments of Tax on Profit: Consideration within the Brusov–Filatova–Orekhova (BFO) Theory

2022

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The modern capital cost and capital structure theory—the Brusov–Filatova–Orekhova (BFO) theory and its perpetuity limit, the Modigliani–Miller theory—describe the case of the payments of income tax at the end of the year. However, in practice, companies could make these payments in advance. Recently, the Modigliani–Miller theory has been modified for the case of advanced payments of income tax and has shown that the obtained results are quite different from ones in the “classical” Modigliani–Miller theory. In the current paper, for the first time, we modify the Brusov–Filatova–Orekhova (BFO) theory for the case of advanced payments of income tax and show that the impact of the transition to advance payments is much more significant than in the case of a perpetuity limit (the MM theory) and even leads to a qualitatively new effect in the dependence of equity cost on leverage. An important conclusion drawn in this paper is that the tax shield is very important, and the way it is formed (payments at the end of the year or in advance) leads to very important consequences, changing all the financial indicators of the company, such as the cost of raising capital and company value and radically changing the company’s dividend policy.

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Section: A Literature Review On the Evolution Of The Theory Of The Co...mentioning

confidence: 99%

Benefits of Advance Payments of Tax on Profit: Consideration within the Brusov–Filatova–Orekhova (BFO) Theory

2022

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“…In the literature, the methodology and results of the Brusov-Filatova-Orekhova (BFO) theory are well known (for example, see references [16][17][18][19][20][21][22][23][24][25][26][27]). A number of papers (see, for example, [22][23][24]) have used the BFO theory in practical calculations.…”

Section: A Literature Review On the Development Of The Capital Cost A...mentioning

confidence: 99%

Influence of Method and Frequency of Profit Tax Payments on Company Financial Indicators

Brusov

Filatova

2022

Mathematics

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In practice, profit tax payments are (1) made more frequently than annually and (2) can be made in advance. To study the influence of these two factors on the financial indicators of a company, we generalized the Brusov–Filatova–Orekhova (BFO) theory for the case of advance profit tax payments with an arbitrary frequency for the first time. Using modified BFO formulae, we showed that all financial indicators of a company, such as company value, the weighted average cost of capital (WACC) and equity cost (ke), depend on the frequency of the profit tax payments. We found that the WACC increased with the payments and the company value decreased with the payments. This meant that more infrequent payments could be beneficial for the company. The tilt angle of the equity cost (ke(L)) also increased with the payments. Depending on the age of the company, the equity cost either decreased with L for all payment frequencies or increased for some frequencies. We compared the obtained results to those that we described recently for profit tax payments at the end of the financial period and found them to be totally different. We found that in spite the fact that the WACC decreased with the payments and the company value increased with the payments, the WACC value in this case turned out to be bigger and the company value turned out to be smaller than in the case of advance profit tax payments of any frequency. This underlined the importance of advance profit tax payments. Regulator recommendations were also developed to encourage the practice of advance profit tax payments due to the understanding of the benefits of this for both parties: the companies and the state. A new effect was discovered: the decrease in equity cost with an increase in the level of leverage (L).

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“…The authors Justyna Franc-Dabrowska, et al [21] analyzed the weighted average cost of capital for a group of companies from the energy sector listed on the European Stock Exchanges, from the point of view of the investors and the market risk. In their research, the authors point out that equity financing is two times more expensive than debt financing and shows the negative correlation between the cost of capital and the future cash flow of the company.…”

Section: Literature Reviewmentioning

confidence: 99%

Study on Companies from the Energy Sector from the Perspective of Performance through the Operating Cash Flow

et al. 2021

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In this paper we analyzed the link between companies’ performance, in terms of cash and income, and the labor productivity or management rates, in case of the companies from the energy sector listed on the Bucharest Stock Exchange. We focused on the energy sector because of the impact that its expansion has on the evolution of economies around the world and because of its dynamics in the sense of gradually shifting to the use of energy from renewable sources. We have used panel regression models to analyze the operating cash flow and the profitability rates and the determination of a causal or dependency relationship with labor productivity or management rates. The results of this study show a significant negative correlation between operating cash flows and the average duration of stock rotation, and no correlation between productivity and the operating cash flow. Instead, the average duration of stock turnover does not at all influence the profitability rates, and productivity is always significant for the return on assets, ie forthe return on equitywith a positive coefficient, as expected. The gap between the average duration of payment of suppliers and the average duration of receivables does not significantly influence neither the cash flow nor the rates of return.

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Energy Sector Risk and Cost of Capital Assessment—Companies and Investors Perspective

Cited by 45 publications

References 95 publications

Benefits of Advance Payments of Tax on Profit: Consideration within the Brusov–Filatova–Orekhova (BFO) Theory

Benefits of Advance Payments of Tax on Profit: Consideration within the Brusov–Filatova–Orekhova (BFO) Theory

Influence of Method and Frequency of Profit Tax Payments on Company Financial Indicators

Study on Companies from the Energy Sector from the Perspective of Performance through the Operating Cash Flow

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