Financial performance – determinants and interdependencies between measurement indicators
Abstract
Purpose – the study has a dual purpose. First, to assess the impact of the most important determinants of financial performance, which have been measured through four generations of indicators. In addition, the study provides the first quantification of interdependencies between different financial performance measures: profit margin (PM), profit growth rate (PGR), return on assets (ROA), return on equity (ROE), and economic value added (EVA).
Research methodology – the primary data was collected from the AMADEUS database. Empirical research was conducted on a relatively homogeneous sample from the automotive industry, using the panel data method for the period 2010–2019. Two models were tested. The first model highlights the relationships between performance measures and selected determinants. The second model highlights the relationship between the different performance measures and the determinants used in the first model.
Findings – the determinants analysed have different influences on the selected performance measures. For example, in the first model, the results statistically significant indicated the following. The current ratio has a positive influence on ROA, but a negative one on ROE and EVA. Gearing has a negative influence on PM and ROA, but a positive one on EVA. The growth rate of sales has a positive influence on PM, but a negative one on ROA and EVA. The size of the company has a positive influence on three performance measures (PM, ROA, and EVA). Regarding the relationships between the different performance measures (second model), the research indicates that EVA is negatively influenced by PGR and ROA. In this model, the determinants analysed maintain their meaning and intensity of influences.
Research limitations – the article has several limitations. The representativeness of the results is valuable only at the level of the researched industry. In addition, it should be noted that the analyses are focused only on financial performance, assessed by accounting measures. The authors are considering conducting comparative analyses at the level of fields/branches of activity to capture not only the impact of determinants on financial performance but also to assess organizational resilience.
Practical implications – The research provides clues to managers and financial decision-makers to increase the financial performance of the companies they lead.
Originality/value – the originality of the study lies in the presented methodological approach. Unlike previous research, which usually evaluated performance on only one indicator, this paper aims to assess the impact of the most important determinants on five performance measures. In addition, the analysis of the interdependencies between the different performance measures is another novelty of this research.
Keyword : financial performance, determinants, economic value-added, automotive industry
How to Cite
Tudose, M. B., Rusu, V. D., & Avasilcai, S. (2022). Financial performance – determinants and interdependencies between measurement indicators. Business, Management and Economics Engineering, 20(1), 119–138. https://doi.org/10.3846/bmee.2022.16732
This work is licensed under a Creative Commons Attribution 4.0 International License.
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Dinh, H. T., & Pham, C. D. (2020). The effect of capital structure on financial performance of Vietnamese listing pharmaceutical enterprises. Journal of Asian Finance, Economics and Business, 7(9), 329–340. https://doi.org/10.13106/jafeb.2020.vol7.no9.329
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Durrah, O., Rahman, A. A. A., Jamil, S. A., & Ghafeer, N. A. (2016). Exploring the relationship between liquidity ratios and indicators of financial performance: An analytical study on food industrial companies listed in Amman Bursa. International Journal of Economics and Financial Issues, 6(2), 435–441.
Egbunike, C. F., & Okerekeoti, C. U. (2018). Macroeconomic factors, firm characteristics and financial performance: A study of selected quoted manufacturing firms in Nigeria. Asian Journal of Accounting Research, 3(2), 142–168. https://doi.org/10.1108/AJAR-09-2018-0029
Endri, E., Sari, A. K., Budiasih, Y., Yuliantini, T., & Kasmir, K. (2020). Determinants of profit growth in food and beverage companies in Indonesia. Journal of Asian Finance, Economics and Business, 7(12), 739–748. https://doi.org/10.13106/jafeb.2020.vol7.no12.739
Erasmus, F. K. (2013). Impact of size and age on firm performance: Evidence from microfinance institutions in Tanzania. Research Journal of Finance and Accounting, 4(5), 105–116.
Fuertes-Callén, Y., & Cuellar-Fernández, B. (2019). Inter-relationship between firm growth and profitability in a context of economic crisis. Journal of Business Economics and Management, 20(1), 86–106. https://doi.org/10.3846/jbem.2019.6928
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Hamann, M., & Schiemann, F. (2021). Organizational performance as a set of four dimensions: An empirical analysis. Journal of Business Research, 127, 45–65. https://doi.org/10.1016/j.jbusres.2021.01.012
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Ichev, R., & Marinc, M. (2018). Stock prices and geographic proximity of information: Evidence from the Ebola outbreak. International Review of Financial Analysis, 56, 153–166. https://doi.org/10.1016/j.irfa.2017.12.004
Imhanzenobe, J. O. (2020). Managers’ financial practices and financial sustainability of Nigerian manufacturing companies: Which ratios matter most?. Cogent Economics & Finance, 8(1), 1–23. https://doi.org/10.1080/23322039.2020.1724241
Izquierdo, J. D. (2015). Growth and profitability on the emergent Brazilian market. Cuadernos de Gestión, 15(2), 91–112. https://doi.org/10.5295/cdg.130444jd
Jenatabadi, H. S. (2015). An overview of Organizational Performance Index: Definitions and measurements. SSRN. https://doi.org/10.2139/ssrn.2599439
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