Modelling of capital structure in relation to business performance maximization


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The aim of the article was to find out the optimal capital structure of the companies in relation to their maximum performance. To reach this aim, the data of the companies operating in the field of heat industry of the Slovak Republic were used. As the first method, a correlation matrix was applied. It was found out that there is statistically significant relationship between capital structure indicators and performance of the companies. Due to the lack of data in time series, the authors were not able to apply multiple regression model to assess the impact of these indicators on performance. Therefore, a method of modelling was used to analyze the impact of the change in capital structure on performance. Modelling was based on the principle of a gradual change in the capital structure in favor of debt. By the increase in debt, it was confirmed that there was a change in the values of selected indicators. In the course of analysis, it was confirmed that the value of EVA equity increased with the rising indebtedness by which the proposition I of the modified MM theory was supported. The performance expressed by EVA entity indicator is at its minimum when the capital structure is 90:10 in favor of equity. By increasing the debt, EVA entity rises. Based on these results, it can be stated that the performance of selected companies increases when the share of debt also rises, even when taking into account the rising financial risks.

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    • Figure 1. Development of the cost of equity following the change in capital structure
    • Figure 2. Development of weighted average capital cost following the change in capital structure
    • Figure 3. Development of the EVA equity indicator following the change in capital structure
    • Figure 4. Development of the EVA entity indicator following the change in capital structure
    • Figure 5. Development of spread following the change in capital structure
    • Figure 6. Development of return on equity
    • Table 1. Values of EVA equity and EVA entity (EUR)
    • Table 2. Correlation matrix