IDEAS home Printed from https://ideas.repec.org/a/nwe/eajour/y2017i4p555-572.html
   My bibliography  Save this article

Analysis of the Weighted Average Cost of Working Capital of Selected Companies on the Bulgarian Stock Exchange During the Financial and Economic Crisis

Author

Listed:
  • Evgeni Raykov

    (University of National and World Economy, Sofia, Bulgaria)

Abstract

The conception of weighted average cost of working capital (WACWC) is based on a long-term approach to short-term assets. The importance of this relatively new indicator reveals the efficiency of liabilities management in crisis and provides a good basis for decisions concerning operating profitability and turnover. The WACWC can also represent the compensation effects of the capital structure dynamics and interest rates influence in times of shortage of capital sources. This new index measures the internal ability of implicit financing sources and the risk of financing current business activities. It also covers some non-traditional capital options that ensued from the crisis like related parties’ financing and sales or depreciation funding, extended trade credit schemes, renewable overdrafts and credit lines, etc. Analyzing data for selected Bulgarian companies during the crisis and post-crisis period (2007-2015) shows a constantly decreasing average cost of working capital financing. This resulted from a changing capital structure that is characterized by an increasing share of equity in the form of retained earnings and debts to related parties. The short-term effect of all other sources of financing continues till the WACWC is in balance with the regulated trading rate of return after normalization of the conditions for overdraft and owner’s capital financing. WACWC shows very close values to classic long-term WACC which is compensated by poor results for the profitability on current assets (ROCA). The higher liquidity requirements led to a reasonable increase in current assets investments although their share to the net revenues remains relatively constant. The enhanced role of owner’s capital has become a natural reaction to the external shocks caused by the crisis but also a remedy assuring flexibility, independent asset management and risk selection for implementing effective hedging policy in the corporation.

Suggested Citation

  • Evgeni Raykov, 2017. "Analysis of the Weighted Average Cost of Working Capital of Selected Companies on the Bulgarian Stock Exchange During the Financial and Economic Crisis," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 4, pages 555-572, December.
    • Handle: RePEc:nwe:eajour:y:2017:i:4:p:555-572
    as

    Download full text from publisher

    File URL: http://www.unwe.bg/uploads/Alternatives/4_Alternativi_english_4_2017.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Monika Bolek, 2014. "Return On Current Assets, Working Capital And Required Rate Of Return On Equity," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 10(2), pages 1-10, August.
    2. Iustina Alina BOITAN, 2016. "Crowdlending and Financial Inclusion Evidence from EU Countries," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 4, pages 418-432, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Saman Adhami & Gianfranco Gianfrate & Sofia Johan, 2023. "Risks and returns in crowdlending," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 13(2), pages 309-340, June.
    2. Hasnan Baber, 2020. "FinTech, Crowdfunding and Customer Retention in Islamic Banks," Vision, , vol. 24(3), pages 260-268, September.

    More about this item

    Keywords

    financial and economic crisis; weighted average cost of working capital; working capital management;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nwe:eajour:y:2017:i:4:p:555-572. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Vanya Lazarova (email available below). General contact details of provider: https://edirc.repec.org/data/unweebg.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.