MODERN INDICATORS DERIVED FROM VALUE CREATION AND DISCOUNTED

Cican Simona (), Lala - Popa Ioan () and Anis Cecilia ()
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Cican Simona: Facultatea de Economie si de Administrare a Afacerilor, Universitatea de Vest Timisoara, West UniversityTimișoara
Lala - Popa Ioan: Facultatea de Economie si de Administrare a Afacerilor, Universitatea de Vest Timisoara,
Anis Cecilia: Facultatea de Economie si de Administrare a Afacerilor, Universitatea de Vest Timisoara,

Annals of Faculty of Economics, 2013, vol. 1, issue 1, 601-607

Abstract: The manner in which resources are allocated, the generation of cash through present resources and the allocation of new liquidities derive from a company's cost-benefit analysis, which is part of management control. The modern financial theory changes the company management objective of maximizing profit with the objective of maximizing its value. The traditional return measures are considered to be insufficient to express the economic reality. Traditional cost-benefit indicators exclude opportunity costs, effects of inflation and risks. The financial experts claim firm value maximization as the main objective of a company's management. The emergence of modern return measures derived from firm value maximization reflects the changes in the economic environment, their emergence creating a dispute over the most appropriate approach regarding value creation. The fact that the data required for their calculation is taken directly from accounts makes them sensitive to accounting distortions. The emergence of modern cost-benefit indicators derived from value creation provides new perspectives on the return. Firm value can grow by generating a higher level of cash flow, by reducing financing costs and by extending the growth period. The value created can be measured by using both modern indicators derived from the theory of value creation and discounted cash flow methods. The value created can be calculated by using discounted cash flow models, which, moreover, are very complicated and take into account a lot of variables. The alternative to these methods is represented by modern cost-benefit indicators that have a more simple calculation methodology, and the forecast of calculation factors is narrower and easier to accomplish. In this article, we will present the connection between discounted cash flow methods and the indicators derived from value creation, based on the business finance theory, which says that firm value will increase if projects with positive net present value are accepted, while it will be destroyed if projects with negative net present value are accepted.

Keywords: modern return measures; economic value added; discounted cash flow model; the net present value; the internal rate of return; cash flow return on investment. (search for similar items in EconPapers)
JEL-codes: G32 M21 (search for similar items in EconPapers)
Date: 2013
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