The cost of capital in the effectiveness assessment of financial management in a company

Aneta Michalak ()
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Aneta Michalak: Silesian University of Technology

No 80/2015, Working Papers from Institute of Economic Research

Abstract: Financial management in a company is a decision process subject to achievement of the main goal of the company, that is its value maximization. Estimation of the cost of capital is of great significance in this area. The cost of capital affects the key decisions of the board concerning the scale of investment undertakings, determination of the target, demanded amount and pace of capital growth, shaping of optimal capital structure and other areas of financial management in a company such as capital budgeting, processes of takeovers and fusions etc. It is also a parameter in calculating the return on investment and in other analyses. The utilization of information about the cost of capital in the decision-making process in the company is strictly connected with the assessment of financial management in the company using market value added. The objective of the article is to review the theory confirming the thesis that the effectiveness assessment of financial management in the company, in the context of market value added growth, is largely dependent on the cost of capital in the company. The article is of theoretical-cognitive and methodological character. It constitutes a reason for further empirical research confirming the relation proved in the theory between the cost of capital and company value, which is a basis for the effectiveness assessment of financial management in the company.

Keywords: capital; cost of capital; value pricing (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2015-04, Revised 2015-04
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