The Impact of the Cost of Funds on the Financial Performance of Economic Enterprises: A Case Study of Saidal Group (Algeria)

Abstract

This study investigates the impact of the cost of funds, measured through the cost of debt, the cost of equity, and the weighted average cost of capital (WACC), on the financial performance of public economic enterprises in Algeria, using Saidal Group. The study follows a quantitative, longitudinal single-case design built on secondary accounting data extracted from Saidal Group's consolidated financial statements published through the Commission d'Organisation et de Surveillance des Opérations de Bourse (COSOB) for the financial years 2013 to 2017. The cost of equity is estimated using the Capital Asset Pricing Model (CAPM) adapted to the Algiers Stock Exchange context, and WACC is computed using book-value weights of debt and equity. Financial performance is operationalized through Return on Assets (ROA), Return on Equity (ROE), and net operating margin. Pearson correlation and simple regression analysis are used to test the proposed relationships. The results indicate a statistically negative relationship between the weighted average cost of capital and Saidal Group's profitability indicators, consistent with the trade-off and pecking-order predictions found in prior literature. The increase in financial debt observed after 2015 raised the firm's overall cost of funds and coincided with pressure on net margins, even though the firm continued to operate with a moderate, sub-50 percent leverage ratio.