The Impact of Working Capital Efficiencies on the Enterprise Value Option: Empirical Analysis from the Energy Sector

Authors

  • Steven Lifland High Point University

Keywords:

Working Capital, Enterprise Value, Energy Sector, Capital markets,

Abstract

This paper, looking within the energy sector, empirically tests the hypotheses that individual and/or net working capital efficiencies impact a company’s enterprise value (EV). The EV metric is unique for it allows an equity investor to assess the firm on the same basis as an acquirer in a merger-acquisition transaction. It represents an option or ‘right’ to buy a firm’s core cash flow or the value of claims on that cash flow. The results show there are significant negative associations between the net working capital efficiencies and enterprise value for large and mid-cap firms. From the perspective of the investoracquirer, the acquisition cost of a company is directly impacted and it shows why they need to pay attention as to how well firms simultaneously turn over their inventories, collect on trade receivables, and service their trade creditors.

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Published

2011-12-31

Issue

Vol. 2 No. 1 (2011)

Section

ABR Journal Articles

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