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ANALYSIS OF COST OF EQUITY MODELS IN CALCULATING ECONOMIC VALUED ADDED OF SLOVAK BUSINESSES
Abstract
This contribution is devoted to the issue of calculating Economic Value Added, as one of the most important business performance evaluation indicators. It elaborates and analyses business value calculation inputs as well as inputs for calculating Cost of Equity. The mentioned issue was solved mainly by application of Capital Asset Pricing Model and build-up model in various scenarios. Risks entering the Cost of Equity are verified with the use of statistical methods. Research sample analysis revealed that when calculating the Cost of Equity, the modification of the risks calculation and evaluation for Slovak businesses is essential. The most difficult point of solution was the determination of the business Risk Premiums and in the case of Capital Asset Pricing Model also market and macroeconomic risks. Risk Premiums processed by several authors dedicated to this issue do not correspond with achieved opportunities in the Slovak Republic. The Risk Premiums place the Slovak companies into the position of outsiders in the reported performance and cause that the majority of Slovak businesses reach negative Economic Value Added. The contribution of this paper is in offering recommendations for modification of the Cost of Equity calculation under the Slovak conditions, mainly in terms of Risk Premiums acceptance.
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