International Review of Business, Trade, and Economics
Economic Performance as the Enduring Reality: A Closed-Loop Diagnostic Reconstruction of FCFE FCFF and EVA
Abstract
Hany Hassanien Badr
This article develops a closed-loop method for diagnosing corporate economic performance before interpreting value. The central proposition is that valuation is not the primary object of analysis: it is a confirmatory representation of a deeper economic circulation in which capital is raised, employed in operations, converted into after-tax operating income, reinvested or released as cash, allocated across financing claims, and carried into the next operating state. Using a controlling five-year model for 2005–2009, the study reconstructs free cash flow to the firm from free cash flow to equity for every explicit year and at the continuing-value boundary. Under the workbook sign convention, FCFF equals FCFE plus the decrease in debt plus after-tax interest. The annual reconstruction closes with zero residual in all five years. At the continuing boundary, FCFE continuing value of 108,791.1362, terminal debt movement of 2,121.0000, and a workbook-reported financing and tax-shield component of 9,377.9090 reproduce FCFF continuing value of 120,290.0452 exactly. The reconstructed FCFF stream discounted at the declared WACC produces operating value of 74,268.4586; the asset-and-claim bridge produces common-equity value of 73,718.4586, or 335.0839028 per share, which converges with the direct FCFF and EVA routes. The contribution is not a new cash-flow identity. It is an auditable diagnostic architecture that integrates annual reversibility, capital-state continuity, terminal claim closure, multi-method convergence, and a management intervention protocol. The results support a disciplined distinction between persistent economic performance and valuation outputs that vary with claims, discount rates, timing, and terminal assumptions.