*3.3. Optimistic Package*

This package significantly differs from the above-mentioned packages. It is focused on the improvement of the environment. Therefore, unlike the previous two models, the initial expenses in this package will be higher and will be eventually paid off.

According to the optimistic package, the company adopts a partial circular economic business model, from a product to a service, as the full shift to this business model can face a number of risks [31]. In the optimistic package, the company is expected to lease out 200 office chairs for five years, amounting to 300,000 EUR, while the lease for five years will cost 183,153 EUR, assuming an investment return of 10% per year (Formula (2)) [32].

$$\text{FVn} = \text{P}\_0 \text{ \* (1 + i) } \text{n} = \text{300} \text{,000} \text{ \* (1 + 0.10) } \text{\* 5} = 483.153 \text{ EUR} \tag{2}$$

where: n—period; i—interest rate; P0—opening amount; FV—future value.

One can conclude that the enterprise will receive 36,630.60 EUR annually from the lessee or 3052.55 EUR per month for 200 leased chairs.

On the other hand, assuming that the company produces 200 office chairs for 300,000 EUR, we can conclude that the lessee will pay 15.26 EUR per month for 1 office chair. As part of the study, one calculates the introduction of the circular economic model provided the following:


Based on these conditions, the authors summarizes revenues and losses from the enterprise's partial shift from manufacturing to providing services in Table 2.


**Table 2.** The financial result of Furniture Factory in the shift from products to services, 2019–2026, EUR [33].

Following Table 2, one can conclude that the enterprise will earn 163,532 EUR within seven years in case of shifting from products to services. The overall benefit over the seven years will be 399,459 EUR. Still, the project will start paying off on the sixth year, i.e., from 2025, when the overall benefit of the project will be 107,828 EUR, while on the fifth year the project won't pay off with a total loss of 210,433 EUR (Figure 6) [33].

**Figure 6.** Total benefits from project implementation, thousand EUR [33].

The authors have calculated the overall benefits obtained if these chairs are renovated and leased to companies A, B and C, for the next five years. Given that these chairs are refurbished rather than re-made, the initial expenses are significantly reduced, resulting in the expected benefit of 287.75% higher compared to the first 5-year cycle of 1,548,918 EUR. Leasing out over 200 chairs to three companies for 10 years, NPV will be 940,315 EUR, so it means that the company is also worth leasing out along with product selling.

Besides the introduction of the circular economy business model 'from a product to a service, the company is expected to acquire the ISO 14001 certificate showing that the company cares about the environment and reduces the amount of waste generated by the production process through reuse, recycling, sharing and reducing the number of environmentally unsafe products through targeted research [34]. Similarly, the company moves to building A, corresponding to the LEED certification to reduce the consumption of resources.

Such a building is located near a centre of a North European capital city and surrounded by bank branches, cafes, shops and features easy and fast public transport. This building has 12 offices, and the authors believe that Furniture Factory should move to office 3A with an area of 415 m2, which is 85 m2 less than the current area. The rental fee for this office is 13 EUR/m2, the service charge is 3.80 EUR/m2, while the average water and energy consumption in this office ranges from 450 to 500 EUR, which is not included in the rental cost.

The total rental cost for the company will be 6972 EUR per month (Formula (3)) [35].

$$\mathbf{C}\mathbf{r} = \mathbf{S}\ ^\ast \text{ (R} + \mathbf{S}\mathbf{C}\text{)},\tag{3}$$

where: Cr—Rental costs; R—Lease; SC—Service charge.

During the interview, the authors has found out that the company currently owns the 500 m<sup>2</sup> building while the cost of maintaining the office is 2 EUR/m2. So, the company currently pays 1000 EUR per month for office maintenance on 177 Freedom Street.

As environmental improvement is a priority for the optimistic model, this package implies the purchase of two electric vehicles to be used by the project manager and designer.

The authors believe that the purchase of electric vehicles contributes to the future of the company as well as to the environmental friendliness. For example, Latvia has 72 charging stations, eight of which are located in Riga (CSDD, 2019). Electricity fees in Latvia also include the total number of electric cars. Total number of normal and fast public charging points in Latvia are shown in Figure 7.

**Figure 7.** Total number of normal and fast public charging points in Latvia [20].

The purchase of electric vehicles in Latvia remains quite popular: in December 2018, the number of electric vehicles was the highest since July—2079; the amount of electricity transferred increased to 29,485 kWh while in February 2019, it decreased to 22,312 kWh, which was caused by the bad weather on roads.

Therefore, drivers prefer public vehicles. Besides, the electric car battery should always be fully charged in the winter. Otherwise, a half-empty battery freezes and cannot be used seamlessly after charging. In Table 3, the authors summarize the range of electric vehicles offered in Latvia in 2019 that could meet the needs of enterprises.


**Table 3.** Range of electric cars in Latvia in 2019 [36].

According to Table 3, it would be more profitable for Furniture Factory to acquire Hyundai Kona Electric because, first of all, the model of this brand offers a maximum distance of 449 km, so the company would be able to travel further outside the city and would not depend on charging stations.

Secondly, electricity consumption is 154 Wh/km, 12 Wh/km more than in KIA Soul EV. Still, we should note here the maximum distance to be travelled: Hyundai's length exceeds twice KIA's space. At the same time, both models have the same price: 39,990 EUR.

Thirdly, it is possible to change this model at home using the standard household outlet, but the full charge of the 64-kWh battery is considered to take 31 h. The battery can be charged quicker using a particular home charging station: in 9 h and 35 min.

Fourthly, this model has received the 2019 s Latvian car innovation prize and the 2019's Latvian eco-car, which shows its popularity and recognition on the Latvian market [36]. Assuming Furniture Factory buys two above-mentioned cars for 79,800 EUR.

Loading of electric vehicles would cost 73.92 EUR per month, taking into account 1200 km per month and 154 Wh km (Table 4); the loading charge would be 0.40 EUR/kWh [37]. On the other hand, car refunding would cost 100 EUR per month (see Annex 4). In order to ensure the comparable prime cost of electric cars and common cars, it is assumed that the two vehicles travel the same distance of 1200 km per month.

Note that the authors have made a number of additional assumptions during the study (for each package, see Table 4):


As shown in Table 4, the cost of the suspicious package amounts to 83,164 EUR. In comparison, the cost of implementing circular economic projects in the standard package amounts to 87,284 EUR, which is 4120 EUR, or 4.9%, more than in the suspicious package [38]. It is primarily related to the expenses for the company's marketing campaign.

In the optimistic model focused on sustainable environmental development rather than cost reduction, the expenses for implementing circular economic projects in the first year are 390,670 EUR, which is 303,386 EUR more than in the standard model. The increase in costs is related to the circular economy business model, from the product to the partial shift to services. As part of this project, the company will produce additional 200 chairs cost 300,000 EUR and move to the LEED certification building [33]. The suspicious package of enterprise financial results between 2020 and 2024 is presented in Table 5.

**Table 4.** Summary of the expenses for implementing circular economic projects according to a package type, in EUR [38].


**Table 5.** Financial results of Furniture Factory in implementing the suspicious package, 2020–2024, EUR [33].


Following Table 5, one can conclude that the circular economy projects mentioned in the pessimistic package should be implemented, as they provide the company with additional benefits: NPV over 5 years at a discount rate of 4% is 49,579 EUR, which is quite positive.

The standard package of enterprise financial results between 2020 and 2024 is presented in Table 6.


**Table 6.** Financial results of Furniture Factory in case of implementing the standard package, 2020–2024, EUR [33].

Following Table 6, one can conclude that the circular economy projects mentioned in the standard package should be implemented, as they provide the company with additional benefits: NPV over five years at a discount rate of 4% is 66,033 EUR, which is quite positive.

Comparing the standard model with the pessimistic one, we can see that NPV of the company in the standard model at a 4% discount rate over 5 years is 16,454 EUR, or 33.2%, higher than in the pessimistic model. This is mainly due to the circular economy industrial symbiosis model included in the standard model, namely the sale of by-products (particles).

One can conclude that when choosing between these two packages, the company should prefer a standard package because the overall benefits over 5 years are higher than in the pessimistic model.

The optimistic package of enterprise financial results between 2020 and 2024 is presented in Table 7.

Following Table 7, one can conclude that the implementation of the circular economy projects mentioned in the optimistic package causes losses to the company, as NPV over 5 years at a discount rate of 4% is 142,969 EUR, which is quite negative.

However, this is only if all projects mentioned in the optimistic package are implemented. If one adopts only the product-to-service business model, it brings overall benefits to the company (Table 2). Apart from losses to the company in the optimistic package, one assumes that the company moves to another building, resulting in additional expenses for the company compared to the current office costs. The overall benefits of the company's optimistic package are obtained if the company does not move to a new office building (Table 8). Following Table 8, we can see that without the company's moving to the building corresponding to the LEED certificate, the overall benefits of the 5-year optimistic package would be 259,026 EUR. On the other hand, NPV would be 191,773 EUR, which should be considered positively. This is mainly due to the

company's partial shift to the product-to-service business model. However, this result is possible only if the company receives used chairs back in 2024 and does not immediately conduct their repair leading to increased expenses.


**Table 7.** Financial results of Furniture Factory in case of the implementation of the optimistic package, 2020–2024, EUR [33].

Following Figure 8, it is more beneficial for the enterprise to adopt the standard package between the standard and suspicious packages. The total benefits over five years are 18,800 EUR, or 36%, higher than in the suspicious package.

On the other hand, the authors point out that the optimistic package results in a total loss of 117,664 EUR over five years, as the number of projects is expected to be implemented in this package. The main reason for the losses is company's moving to the new office building. If the structure remains the same, the total benefits for the company would be 259,026 EUR.

The authors conclude that the company should implement projects in the optimistic package and stay in the existing office building. The critical circular economy project that the company should implement is the partial shift to the product-to-service business model, which creates additional benefits.

In Formulas (4)–(7), the authors compile and calculate the financial ratios of Furniture Factory for 2017 affected by the adoption of circular economy business models. They use the company's 2017 annual report for the calculation, as well as the company's 2016 and 2015 annual reports to compare the results obtained in previous years.

$$\text{ROE 2017} = \frac{267,366}{(504,700 + 237,333)/2} = 72.1\% \tag{4}$$


**Table 8.** Financial results of Furniture Factory in case of the implementation of the optimistic package without moving to a new office building, 2020–2024, EUR [33].

In Figure 8, the authors summarize the total benefits or losses over 5 years for each package.

**Figure 8.** Benefits or losses from the introduction of a circular economy (thousand EUR).

One concluded that Furniture Factory had a high return on equity of 72.1% in 2017. The introduction of circular economy business models is expected to result in increasing revenues, so ROE will grow. However, if this does not happen, the company should find the cause.

The period of 2015–2017 is shown in Figure 9.

**Figure 9.** Return on equity, 2015–2017 (interests).

The ROE indicator is essential for owners as it shows the return on invested funds. According to Figure 9, the company's ROE is volatile: 35% in 2015, but 55% in 2016 because of the company's losses this year (211,370 EUR). However, in 2017, it increased to 72%, which should be considered positively, as it means returning of 0.72 cents from each EUR invested and receiving of 0.39 cents in 2015 from the owners of each 1 EUR invested, while in 2016, the owners did not obtain any profit on their investments, as the figure was negative.

At the return on assets of 35.2% (see Formula (5)), we can see that the company efficiently uses funds in its operations. The adoption of circular economy business models is expected to increase the company's revenues so that ROA will also increase in reducing expenses.

However, suppose ROA decreases after adopting the circular economy. In that case, one should conclude that the introduction of the circular economy does not benefit the company and that expenses are not reduced.

$$\text{ROA 2017} = \frac{267,366}{(956,056 + 574,382)/2} = 35.2\% \tag{5}$$

The period of 2015–2017 is shown in Figure 10.

ROA shows how efficiently the company uses funds in its operations. We can see that ROA shows a similar trend as ROE, which is harmful in 2016 because the company suffered losses. The return on assets in 2015 was 24%, while it increased to 35% in 2017, which should be considered positively.

The debt-to-equity ratio (D/E) of 87.4% (see Formula (6)) indicates that the company depends on borrowed capital. The company should closely monitor its share of liabilities. It could be difficult for a company to obtain a loan at that rate. However, note that it is 2017 s data. The situation could be better in 2018.

Analyzing the annual reports, the authors found that the most significant proportion of short-term liabilities accounts for other loans, primarily from Carpa Ltd. and financial leases. In our case study, the owner of Carpa Ltd. and Furniture Factory is the same person. In 2017, Furniture Factory received 90,000 EUR of interest-free loans from Carpa Ltd. for an indefinite period, amounting to 86.25% of the total amount of other loans, or 20.39% of the total amount of liabilities in 2017.

$$\text{D/E 2017} = \frac{441,356}{504,700} = 87.4\% \tag{6}$$

The debt-to-equity ratio in the examined years (2015–2017) was the highest in 2016: 136%. This is primarily caused by the company's losses this year (202,094 EUR), consequently reducing equity.

Besides, the debt-to-equity ratio grew in 2016: total liabilities raised by 49% in 2016 compared to 2015. The increase in liabilities was related to the rise in the other loans item, like 2017. The company received an interest-free loan of 90,000 EUR from Carpa Ltd., resulting in increasing liabilities.

On the other hand, in 2015, the debt-to-equity ratio was the lowest in the examined years, namely 43%, as the company did not receive any loans from related parties (like 2016 and 2017). Thus, the total liabilities were the lowest this year: 225,355 EUR.

The total liquidity shows whether a business entity has sufficient working capital to cover its short-term liabilities. The furniture Factory indicator is within typical limits in 2017 (Formula (7)).

Note that the calculation of the total liquidity considers short-term liabilities where the company's key share accounts for the other loans section, namely financial leasing and primary loans from related parties in the examined years from Carpa Ltd.

$$\text{Total liquidity } 2017 = \frac{621,120}{424,662} = 1.5\tag{7}$$

Following Formula (7), one can conclude that the company is a part of all examined years within the optimal limits of total liquidity (1–3). However, note that in 2016, the company's total liquidity was close to the lowest optimal threshold, i.e., 1.1, which cannot be assessed too positively, as when this figure falls below 1, the company could fail to settle short-term liabilities. In 2015, however, this indicator reached the optimal upper limit of 3, which cannot be judged too positively. If this indicator is above 3, it means the use of inefficient working means. On the other hand, in 2017, the company's total liquidity was 1.5, which should be assessed positively based on information from Lursoft (2019), and 0.70 on average in the sector in 2017 [33].

The authors believe that the calculated financial ratios and indicators contained therein provide valuable information to the company on adopting of circular economic business models.

The practical part of the study allows us to conclude that the company can successfully integrate circular economy business models in order to ensure positive NPV.

Considering environmental damages caused by the anthropogenic impact on the ecosystem, it is reasonable to adopt the principles of sharing economy at enterprises (Figure 11), which will positively affect company's economic performance in the long run [39].

Considering the circular economy theory from the perspective of its increasing efficiency, it is reasonable to adopt sharing, as its part that functions at the stage of selling and using, which will substantially enhance product usefulness and prolong the life span of goods. The principles of sharing economy supplement the principles of circular economy, making it more flexible and comprehensive due to alternative options and information technologies [40]. Additional advertising of shared goods can boost sales of new similar products, increase the money turnover and the number of transactions, positively affecting macroeconomic indicators [41]. The functioning of the circular economy system will encourage resource-saving and energy-saving, manufacturing rationalization and reduction

in negative remnants, which is a part of the zero-waste concept popular in numerous developed countries. The production stage also faces changes while adopting the circular economy, which have positive economic and ecological effects [42]. The introduction of the circular product movement system can also lead to changes in social life. We could see a sharp increase in employees in information, digital, innovative and services sectors. At the same time, one could reduce the share of inhabitants engaged in the manufacturing and extraction of primary resources. The foundation for the shift to the fully efficient circular economy is the recycling of goods and automation of manufacturing processes, giving an impetus for developing cutting-edge systems, software, innovative technologies, and their integration into life. Sharing is a model for establishing a robust system of small and medium businesses that are critical taxpayers in such developing countries as Ukraine and an efficient tool for improving the economic state. The authors can conclude that sharing is a part of the circular economy that should be implemented in society to achieve strategic national goals and improve the quality of social life and the ecosystem.
