Capital Budgeting in a Low Interest Environment - How Swiss Companies Generate and Use Their Cash Flows
As of today, Swiss companies find themselves in a historical low interest environment. How does this influence capital budgeting? Are the companies investing more because of lower cost of capital, or do they distribute unused cash to shareholders?
Frei Manuel & Hinden Sven, 2016
Bachelor Thesis, Institut für Finanzmanagement, Hochschule für Wirtschaft FHNW
Betreuende Dozierende: Clemens Kustner
Keywords: capital budgeting, low interests, cash flow, empirical analysis, investments, dividend policy, swiss performance index, spi, swiss companies
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Since the financial crisis in 2008, Swiss companies face a historical low interest environment. This unique situation gave reason for the following research questions: „ How do Swiss companies generate and use their cash flows in a low interest environment? “ In order to answer this questions two hypotheses were formed: 1) In a low interest environment, companies are increasing their investments. 2) If investments are not increased, the distribution of generated cash flows to creditors and shareholders will rise.
For this study, an empirical analysis of companies' financial statements was conducted. It consisted of 52 companies of the SPI (Swiss Performance Index) in the sectors Health Care, Industrial Engineering, Food & Beverage and Chemicals. The financial statements were analysed by using a custom-made MS Excel schema. The gathered data was summarized and visualised by using various diagrams. In a final steps results were compared, discussed and interpreted by using prevailing corporate finance theory.
The study revealed that in the timeframe of 2006-2015, companies' investments show a declining trend, contrary to previous assumptions. Overall asset profitability declined. Concerning distribution of cash flows it was found that dividends have been raised constantly, independent of cash flow development. The change in debt showed no connection with the low interest rates, and cash holdings indicated no clear trend overall. This shows that despite lower cost of capital, companies still hesitate to invest more and to increase debt financing.
Studiengang: Business Administration International Management (Bachelor)
Fachbereich der Arbeit: Accounting, Banking, Controlling and Finance
Art der Arbeit
Institut für Finanzmanagement, Hochschule für Wirtschaft FHNW, Brugg
Autorinnen und Autoren
Frei Manuel & Hinden Sven
Sprache der Arbeit
Business Administration International Management (Bachelor)
capital budgeting, low interests, cash flow, empirical analysis, investments, dividend policy, swiss performance index, spi, swiss companies