Financial constraints on investments: A three-pillar approach

Bagella, Michele; Becchetti, Leonardo; Caggese, Andrea

doi:10.1006/reec.2000.0249

Cited by 35 publications

(16 citation statements)

References 27 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The IRR, even if characterized by several limitations, is thus one of the most applied and well-known approaches in investment evaluation. Firstly, in fact, the IRR as a criterion for choosing between alternative investments (maximum IRR) suffers from a lack of consideration of the opportunity cost of capital in the calculation and risks of multiple solutions [30] and does not consider financial constraints [50,51]. To evaluate the convenience in building renovation via an energy saving investment, we will apply three different models and then compare the results.…”

Section: Methodsmentioning

confidence: 99%

Evaluation of Investment in Renovation to Increase the Quality of Buildings: A Specific Discounted Cash Flow (DCF) Approach of Appraisal

Bonazzi

Iotti

2016

Sustainability

View full text Add to dashboard Cite

Abstract:The objective of this article is to develop and apply a specific discounting cash flow (DCF) approach to evaluate investment in renovation to improve building quality, thus increasing energy efficiency. In this article, we develop and apply a specific net present value (NPV) and an internal rate of return (IRR) approach to quantify the value created for the owners of the building by the investment in renovation via energy-saving investments that produce positive externalities. The model has an applied interest because, in recent years, a lot of investments in real estate were made by owners in order to increase the green quality of the buildings, and several funds of public aid were provided by the government to stimulate these energy-saving investments. The model proposed here is applied to a case study of a 16-apartment building located in northern Italy considers the model attempts to quantify the initial investment value, the energy savings, the tax deduction of the initial investment and the terminal value of the investment as the increase in building value. The analysis shows that the model is consistent in evaluating investments to improve building quality, and investments within the context of the specific case study considered in the research have IRRs ranging from a minimum of 4.907% to a maximum of 12.980%. It could even be useful to consider a sample of cases to verify whether our results are representative of this specific case study. The model could represent a useful tool for consumers in evaluating their own investments in building renovation, from a stand-alone perspective and even by comparing them with other types of investment. The research could be developed in the future to quantify the social welfare generated by public spending via tax deductions to reduce the costs of investment in energy savings for buildings and could even be applied to new real estate projects in comparing different construction technologies and even comparing the return of renovation investment with other investments not even in the real estate sector.

show abstract

Section: Methodsmentioning

confidence: 99%

Evaluation of Investment in Renovation to Increase the Quality of Buildings: A Specific Discounted Cash Flow (DCF) Approach of Appraisal

Bonazzi

Iotti

2016

Sustainability

View full text Add to dashboard Cite

show abstract

“…AΠ in balance sheet is equal to Π of income statement. Income statement does not take into account timing of monetary operations, and income margins (EBITDA, EBIT, and Π) do not express necessary cash flow generation, as shown by several studies focusing on companies with large investments in fixed assets [46,47] and working capital [48][49][50].…”

Section: Income Statement Analysismentioning

confidence: 99%

Assessment of Biogas Plant Firms by Application of Annual Accounts and Financial Data Analysis Approach

Iotti

Bonazzi

2016

Energies

View full text Add to dashboard Cite

Firms operating biogas plants are often characterized by making significant investments in fixed assets financed by equity and, mainly, financial debt. These firms have experienced significant growth in Italy, partly as a result of public contributions. The objective of the research is to analyze the management of biogas plant firms by analyzing annual accounts as the main document of use to third parties for the evaluation of a firm's management. The research, conducted on a sample of 22 firms using 110 year-data, has highlighted that economic and financial margins are different, though often statistically correlated. The research shows that profitability and cash generation in the biogas plant industry are high, even if the generation of cash flow is less than the return on equity, and there are firm cases of having difficulty in financial debt repayment, even in the presence of positive economic margins. The research also shows that return on equity greatly exceeds the performance of Italian government bonds and of the majority of industrial sectors; this result points to the significant increase in returns on equity capital in the industry, potentially damaging other sectors, and highlighting the risk of the distortive use of public resources.

show abstract

“…This can be seen from several studies relating to companies with large investments in fixed assets (Fazzari and Petersen, 1993;Cleary, 1999;De Miguel and Pindado, 2001;Bagella et al, 2001;Caggese and Cunat, 2014) and working capital (Shin and Soenen, 1998;Howorth and Westhead, 2003;Padachi, 2006;Caggese, 2007;Taylor, 2011;Ukaegbu, 2014;Kroes and Manikas, 2014;Iotti and Bonazzi, 2014c). In this research, we apply the approach of annual account analysis developed for the agri-food sector with capitalintensive characteristics (Bonazzi et al, 2012).…”

Section: Balance Sheet Analysis Approachmentioning

confidence: 97%

Profitability and Financial Sustainability Analysis in Italian Aquaculture Firms by Application of Economic and Financial Margins

Iotti¹,

Bonazzi²

2015

American Journal of Agricultural and Biological Sciences

View full text Add to dashboard Cite

Agricultural Firms operating in the aquaculture sector in Italy are often characterized by high investment and high capital intensity. In fact, these companies need to develop structures and breeding systems to generate adequate cash flow to repay their investment in fixed assets. In addition, the biological cycle of breeding further extends the need for capital, in this case to finance working capital. There is therefore often a mismatch between the economic and financial cycles, wherein profit margins may differ from financial margins. In this way, such companies have an economic advantage but no sustainable financial cycle. In these cases, several crisis may force companies to default, especially when firns are unable to cover debt repayment. This difficulty is particularly present in Italy, where aquaculture firms are often Small and Medium Enterprises (SMEs) and therefore have greater difficulty than large companies accessing the capital market. Our research evaluates the cost effectiveness and financial sustainability of a sample of forty firms operating in the aquaculture sector in Italy, within a timespan of five years, through comparative analysis of the economic and financial margins. The analysis shows that such firms are capital intensive (TA/VP of median value is 1.16%). Financial debt emerges as the first source of capital then increasing companies' financial dependence through credit systems and borrowing costs. Firms have a particular absorption in the NWC cycle, with I_DAYS being 143.29 days, AR_DAYS being 72.75 and 145.51 AP_DAYS expressing financial operating cycle (I_DAYS + AR_DAYS -AP_DAYS) with a length of 70.53 days. Profit margins, even if they are correlated with financial margins, are lower on average. The research highlights that economic model worst explains FCFE (F = 0.011 and adjusted R 2 = 0.803), while the financial model best explains FCFE (F = 0.000 and adjusted R 2 = 0.922). Our research will be further developed through analyzing cooperatives, unincorporated partnerships and sole proprietorships. It may also be useful to undertake a comparative analysis of aquaculture firms operating in other countries of the Mediterranean basin.

show abstract

Financial constraints on investments: A three-pillar approach

Cited by 35 publications

References 27 publications

Evaluation of Investment in Renovation to Increase the Quality of Buildings: A Specific Discounted Cash Flow (DCF) Approach of Appraisal

Evaluation of Investment in Renovation to Increase the Quality of Buildings: A Specific Discounted Cash Flow (DCF) Approach of Appraisal

Assessment of Biogas Plant Firms by Application of Annual Accounts and Financial Data Analysis Approach

Profitability and Financial Sustainability Analysis in Italian Aquaculture Firms by Application of Economic and Financial Margins

Contact Info

Product

Resources

About