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Journal of Competitiveness

Golden Rules of Financing Related to the Life Cycle of Czech Automotive Firms

Konečný Zdeněk

Keywords:
capital providers, corporate life cycle, financial risk, financial sources, golden rules of financing

Abstract
Companies go through their life cycle and it is only possible to moderate but not completely eliminate the switchover from one phase to another. Each phase is connected with different financial results as a consequence of financial conditions and financial decisions. The aim of this article is to find out whether the golden rules of financing are (or are not) respected, dependent on financial strategy, in sub-phases of the corporate life cycle. It is caused by the fact that the golden rules are indicators of the rate of financial risk and some providers can consider their respecting by deciding to lend capital. However, golden rules of financing are not set strictly and therefore the comparison with market averages is necessary. The research is implemented by analyzing secondary data from financial statements and documents of the Ministry of Industry and Trade of the Czech Republic for years from 2007 to 2011. The sample consists of 43 companies limited by guarantee and joint-stock companies, regardless their size, acting in the Czech automotive industry. Phases of the corporate life cycle are identified according to the model by Dickinson (2010) based on combinations of cash flow values. The research showed that the golden rule of risk compensation is respected especially during maturity, whilst during introduction it is broken and on the market this rule is not respected either. Almost in all companies, regardless the phase, as well as on the whole market are long-term assets financed with long-term sources. During maturity, shake-out and decline the recommended liquidity of the second level is reached, but not the liquidity of the third level, whereas during the introduction and growth is not reached the recommended liquidity of any levels. The market is characterized with a sufficient liquidity of the second and insufficient liquidity of the third level. A surprising finding is that the golden ratio rule is, in most periods, respected on the market, but not in many companies in any phases.

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10.7441/joc.2013.02.06


Konečný Z. (2013). Golden Rules of Financing Related to the Life Cycle of Czech Automotive Firms. Journal of Competitiveness, 5 (2), 83-97 http://doi.org/10.7441/joc.2013.02.06 
Journal of Competitiveness

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