Relationship between Variations in Valuation Methodologies: Evidence from Polish Construction Market

Abstract

Making investment decisions in modern conditions is quite complicated. On the example of the construction industry, the article tests the approach based on WACC and WARA analyses. The risk and profitability of the specified markets were analyzed based on the Efficient Frontier method. The Polish market and the group of Euronext markets were selected for comparison. The necessity of calculation of WARA based on only significant assets was determined. The differentiation between WARA and WACC in the Polish construction market can be overcome by maximizing goodwill and intangible assets and minimizing tangible assets. It reveals problems not in the stock market, but in the industry and the economy as a whole, particularly the lack of functioning markets such as the stock market for individual assets. The role of intangibles is different for Euronext markets. On the other hand, the requirement of the international accounting standards to transfer goodwill from assets to "other income" in case of a negative value (bad will) makes adequate consideration of goodwill in the WARA model virtually impossible. Another problem is a calculation of relative weights of assets in conditions of occurrence of both positive and negative values, which creates prerequisites for different approaches and interpretations. Building material that is used in the construction industry tries to improve the environment. the source of building materials are natural resources such as sandstone.