157,928 research outputs found
A Sum&Discount method for appraising firms:An illustrative example
No full textThis paper presents a new way of valuing firms and measuring residual income. The method, originally introduced in Magni (2000a, 2000b, 2000c, 2001), is here renamed lost-capital
paradigm. In order to enhance comprehension the presentation relies on a very simple numerical example which shows that the new paradigm of residual income enjoys a property of abnormal earnings aggregation, according to which the NPV (and therefore the market value) of the firm does not change if each residual income changes, as long as the (uncapitalized) sum of all residual incomes do not change. While radically different from the standard residual income, the difference between the two notions is equal to the interest accrued on the past cumulated standard residual incomes, which has interesting implications for incentive compensation
Economic value added and systemic value added: symmetry, additive coherence and differences in performance
No full textTwo measures of excess profit are currently available in the literature: Economic Value Added (EVA) (Stewart, 1991) and Systemic Value Added (SVA) (Magni, 2003a, b, 2004; 2005). This study shows that, unlike EVA, SVA is symmetric and additively coherent. Also, EVA and SVA are not simply different in value but also convey different information about good or bad performances
Capital depreciation and the underdetermination of rate of return: A unifying perspective
No full textThis paper shows that the notion of rate of return is best understood through the lens of the average-internal-rate-of-return (AIRR) model, first introduced in Magni (2010a). It is an NPV-consistent approach based on a coherent definition of rate of return and on the notion of Chisini mean, it is capable of solving the conundrums originated by the rate-of-return notion and represents a unifying theoretical paradigm under which every existing measure of wealth creation can be subsumed. We show that a rate of return is underdetermined by the project’s cash-flow stream; in particular, a unique return function (not a unique rate of return) exists for every project which maps depreciation classes into rates of return. The various shapes a rate of return can take on (internal rate of return, average accounting rate of return, modified internal rate of return etc.) derive from the (implicit or explicit) selection of different depreciation patterns. To single out the appropriate rate of return for a project, auxiliary assumptions are needed regarding the project’s capital depreciation. This involves value judgment. On one side, this finding opens terrain for a capital valuation theory yet to be developed; on the other side, it triggers the creation of a toolkit of domain-specific and purpose-specific metrics that can be used, jointly or in isolation, for analyzing the economic profitability of a given project. We also show that the AIRR perspective has a high explanatory power that enables connecting seemingly unrelated notions and linking various disciplines such as economics, finance, and accounting. Some guidelines for practitioners are also provided
Performance attribution, time-weighted rate of return, and clean finite change sensitivity index
No full textWe propose an innovative methodology for decomposing the value added generated by a money manager within a given assessment interval into the contributions of the manager’s investment decisions made in the various periods, in order to identify the most (and the least) impactful period decisions. To this end, we benchmark an actively-managed investment against a reference portfolio replicating the client’s contributions and distributions and earning the benchmark returns. We apply the Clean Finite Change Sensitivity Index method (Borgonovo in Eur J Oper Res 200:127–138, 2010a, Risk Anal 30(3):385–399, 2010b; Magni et al. in J Oper Res Soc 71(12):1940–1958, 2020) to the investment’s value added in order to obtain a complete decomposition of it into the contributions of the investment decisions made in the various periods; we rank the period decisions according to their contributions and show that, if the contribution-and-distribution policy changes, the effect of the investment choices made in the various periods on the value added changes as well, which testifies of the interaction between the manager’s decisions and the client’s decisions, the former affecting the financial efficiency and latter affecting the investment scale. In particular, neutralizing the contributions and distributions (and, therefore, the investment scale), we show that the Time-Weighted Rate of Return (TWRR) can be arithmetically obtained from the value added and can be decomposed into the same period contributions of the value added, thereby providing a reconciliation between the value added notion and the TWRR
Paola Magni: a Real Forensic Investigator
No full textMurdoch University entomologist Paola Magni lives the daily life of a forensic investigator helping the police solving the most complex criminal cases. In this interview Dr Magni talks about her most successful investigations
Investment decisions and sensitivity analysis: NPV-consistency of rates of return
No full textInvestment decisions may be evaluated via several different metrics/criteria, which are functions of a vector of value drivers. The economic significance and the reliability of a metric depend on its compatibility with the Net Present Value (NPV). Traditionally, a metric is said to be NPV-consistent if it is coherent with NPV in signalling value creation. This paper makes use of Sensitivity Analysis (SA) for measuring coherence between rates of return and NPV. In particular, it introduces a new, stronger definition of NPV-consistency that takes into account the influence of value drivers on the metric output. A metric is strongly NPV-consistent if it signals value creation and the ranking of the value drivers in terms of impact on the output is the same as that provided by the NPV. The degree of (in)coherence is calculated with Spearman's (1904) correlation coefficient and Iman and Conover's (1987) top-down coefficient. We focus on the class of AIRRs (Magni 2010, 2013) and show that the average Return On Investment (ROI) enjoys strong NPV-consistency under several (possibly all) methods of Sensitivity Analysis
On Decomposing Net Final Values: Eva, Sva and Shadow Project
No full textA decomposition model of Net Final Values (NFV), named Systemic Value Added (SVA), is proposed for decision-making purposes, based on a systemic approach introduced in Magni [Magni, C. A. (2003), Bulletin of Economic Research 55(2), 149–176; Magni, C. A. (2004) Economic Modelling 21, 595–617]. The model translates the notion of excess profit giving formal expression to a counterfactual alternative available to the decision maker. Relations with other decomposition models are studied, among which Stewart’s [Stewart, G.B. (1991), The Quest for Value: The EVAâ„¢ Management Guide, Harper Collins, Publishers Inc]. The index here introduced differs from Stewart’s Economic Value Added (EVA) in that it rests on a different interpretation of the notion of excess profit and is formally connected with the EVA model by means of a shadow project. The SVA is formally and conceptually threefold, in that it is economic, financial, accounting-flavoured. Some results are offered, providing sufficient and necessary conditions for decomposing NFV. Relations between a project’s SVA and its shadow project’s EVA are shown, all results of Pressacco and Stucchi [Pressacco, F. and Stucchi, P. (1997), Rivista di Matematica per le Scienze Economiche e Sociali 20, 165–185] are proved by making use of the systemic approach and the shadow counterparts of those results are also shown. Copyright Springer 2005decomposition, excess profit, systemic, shadow project, EVA, SVA, Net Final Value, C00, G00, G31,
Impact of financing and payout policy on the economic profitability of solar photovoltaic plants
No full textThis paper introduces an innovative comprehensive evaluation model for appraising an investment in a solar photovoltaic plant which encompasses both operational and financial management. We illustrate the intricate network of logical relations among technical (estimated) variables and financial (decision) variables and show that establishing transparent links between the former and the latter enhances the accuracy and soundness of the model. The results indicate that understanding the conceptual and formal relations of operating variables and financial decisions is necessary for correctly measuring shareholder value creation and making rational decisions, even for those projects (such as solar energy projects) where the operating, technical component is of paramount importance. We show how a firm's decision of replacing conventional energy with solar energy may be affected by managerial decisions regarding the firm's payout/retention policy and its financing policy to support the project. The model discloses insights on how to fine-tune the financing and distribution decisions in order to maximize the value creation for shareholders. We apply the model to a real-life photovoltaic project to be located in the province of Modena, in Northeast Italy, and quantify the effect of financial decisions on the project's net present value, showing that the financing and distribution policies may amplify or shrink the impact of changes in other inputs and may even revert an otherwise unprofitable project into a value-creating one. Finally, we allow operational variables as well as financial variables to change in order to measure their importance via the application of the Clean Finite Change Sensitivity Indices (Magni et al., 2020)
Pseudo-Naive Approaches to Investment Performance Measurement
No full textThis paper makes use of Magni's (2013) Average Interest Rate (AIR) in order to fi nd a performance index which does not depend on the valuation rate (i.e., benchmark return). To this end, we distort the AIR by dropping the discount factors in the formula. The resulting modi ed AIR (MAIR) is the ratio of overall (undiscounted) return to overall (undiscounted) capital. While seemingly a na ive metric, we show that it is a genuinely internal metric, capable of capturing an investment's economic profi tability, as long as it is compared with an appropriate
cuto rate which adequately takes account of the opportunity cost of
capital. The not-so na ve MAIR is then extended to several di erent capital
bases; the result is that other well-known (allegedly na ve) metrics, such as cash
multiple, undiscounted pro tability, Modi ed Dietz and Simple Dietz return are
given economic signi cance: each such metric is a (pseudo-na ve) performance
index that correctly expresses the investment's amount of return per unit of a
speci c capital: overall capital, initial investment, total cash out
ow, average
cash out
ow).
Keywords. Finance, investment
Hegel between subversion and resistance
No full textHow to intend the action of the concepts of resistance and subversion within and departing from Hegelian Philosophy?
The notions of ‘subversion’ and ‘resistance’ refer to an ideologically marked universe, and for this reason, especially during the twentieth century, they have been articulated in different ways, expressing sometimes radically opposing interpretations. The overall goal of issue 9 of B@belonline, Hegel between subversion and resistance, is to take a post-ideological look at such concepts and their unexplored potential within and from the Hegelian system
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