Recent news for medium-sized companies and banks:
Capital cost studies: more than 25 % of company value – 3 rules for success for managers
Schulz and Partners analyzed the following parameters in 30 DAX-companies and 35 MDAX-companies as shown in the S+P recent studies of 2013:
– Risk-free interest rate
– Growth factor
– Market risk premium
– Standard tax rate
– Capitalization interest rate
Results of S+P capital cost studies at a glance
“In our capital cost studies of 2013,” said Achim Schulz, the executive director of business consulting agency Schulz and Partners in Munich, “our aim was to investigate to what extent the financial crisis influenced the yield expectations of investors and shareholders in the DAX- and DMAX-companies.”
The capital cost studies show the following results of 30 DAX- and 35 DMAX-companies involved in the studies.
– MDAX-companies with 10.1 % should pay remarkably higher capital cost before taxes in comparison to DAX-companies with 9.07 %. With greater independence of company owners, the requested yield will significantly rise. These yield requirements particularly effect the medium-sized and owner-managed companies.
– The cost of equality increased from 9.1 % to 9.3 % and the cost of debt before taxes – from 5.2 % to 5.4 %.
– The analysis of DAX- and DMAX-companies reveals that the capital cost before taxes (interest yield demand of equality and debt capital provider) set by sellers and investors remained generally stable.
– A entirely different picture emerges at a capital-asset ratio. Since the outbreak of the financial crisis in 2007, listed companies have substantially increased their average capital-asset ratio from 52.9 % to 70.4 %.
“Capital cost studies of 2013 show considerable spreads in the DAX- and DMAX-companies with respect to the adoption of valuation parameters of risk-free interest rate, market risk premium and growth factor,” points out Achim Schulz.
3 rules for success for more than 25 % of company value.
“Our capital cost studies propose three significant rules for success concerning the activities of managers. Sticking to these rules can lead to more than 25 % of company value,” stresses Achim Schulz, the co-author of Schulz and Partners Study.
Rule for success 1: Capital cost in the focus of corporate valuation.
In a company with capital-asset ratio of 30 %, a modification of interest rate of 1 % can lead to a change in the company value up to 12 %.
Rule for success 2: yield expectations in the focus of purchasers.
The change in capital costs as well as in quality and debt capital reveals even a greater leverage. With the capital-asset ratio of 30 % and a change in WACC of 1 %, the company value increases or reduces from 20 % to 25%.
Rule for success 3: value-based management with significant key figures.
The returns on total capital employed, the return on equality and the economic value added are the most important yield figures for a higher corporate value.
If you have any questions open or wish to receive further information, we will be pleased to assist you.