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Influences of the Capital Structure and the Cost of Capital on Financial Performance. Case Study on ENGIE Group

Author

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  • Elena Valentina IVASCU

    (Dunarea de Jos University of Galati, Galati, Romania)

  • Nicoleta BARBUTA-MISU

    (Dunarea de Jos University of Galati, Galati, Romania)

Abstract

The main objectives of the company's financial management are to ensure financial performances and to choose the capital structure that corresponds to the lowest total cost of capital. The purpose of this paper is to analyse the relationship between the capital structure and cost, and the financial performance of Engie Transnational Group, one of the most important global electricity producers. The data used were extracted from the Amadeus and Bloomberg databases for the period 2010-2015. Financial performance was analysed both by creating and proposing an aggregate index, as well as based on the Z Conan & Holder score. The company's financial structure was analysed on the basis of the total leverage ratio and for the total cost of capital, the weighted average capital cost formula was used. The results obtained at the Engie Group level show that the capital structure is predominantly indebted, and the maximum financial performance is obtained when the financial structure is minimal and the weighted average capital cost is maximum. The reversed relationship between the financial structure and the financial performance is in accordance with the financial structure theories of information asymmetry, pecking order and dynamic trade-off. The reversed relationship is confirmed in all Engie Group companies, except one company from United Kingdom.

Suggested Citation

  • Elena Valentina IVASCU & Nicoleta BARBUTA-MISU, 2017. "Influences of the Capital Structure and the Cost of Capital on Financial Performance. Case Study on ENGIE Group," Proceedings RCE 2017, Editura Lumen, vol. 0, pages 304-320, November.
    • Handle: RePEc:lum:progal:v::y:2017:i::p:304-320
    DOI: https://doi.org/10.18662/lumproc.rce2017.1.26
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    References listed on IDEAS

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    2. Justyna Franc-Dąbrowska & Magdalena Mądra-Sawicka & Anna Milewska, 2021. "Energy Sector Risk and Cost of Capital Assessment—Companies and Investors Perspective," Energies, MDPI, vol. 14(6), pages 1-20, March.

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    More about this item

    Keywords

    Financial performance; aggregate index; financial structure; solvency; weighted average cost of capital (WACC). Title of Book: Risk in Contemporary Economy;
    All these keywords.

    JEL classification:

    • A23 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Graduate

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