Abstract
In many Italian regions, firms operating in tomato industry have made significant investments in plants and machinery and often sell products to large food retail chains that require large stocks of inventory and have an average time of over 150 days for the payment of receivables. These management characteristics amplify capital requirements, in large part financed, increasing debt levels. Also, because of the increasing costs of raw materials in recent years, many firms in the tomato processing sector in Italy have suffered a corporate crisis and even bankruptcy. Therefore, tomato processing firms need to properly control management, particularly in applying indicators that express the sustainability of the financial cycle. To achieve this goal, the article analyzes the annual account data of a sample of 54 tomato processing firms in Italy across a five-year period, showing that economic margins traditionally applied to assess the sustainability of the management cycle differ significantly from financial margins. Moreover, the annual account data of the sample firms highlight the difficulties in credit access, expressed by applying a multiple regression model to analyze return on equity and flow on equity generation. To deepen the analysis, the considered methods could be applied to other agri-food firms, particularly if characterized by high capital intensity.
Highlights
The cultivation and processing of tomatoes characterizes various areas of Italy, a country in which the tomato is one of the most important components of agricultural food production
The analysis shows that profit margins (EBIT, EBITDA and PROFIT) are statistically different from financial margins (CF, operating Cash Flow (OCF), Unlevered Free Cash Flow (UFCF) and Free Cash Flow to Equity (FCFE))
The research plan would consider the determinants of economic (PROFIT) and cash flow (FCFE) margins available for equity holders, showing which variables are the determinants of these flows, in order to provide useful information for managing firms in the tomato processing sector
Summary
The cultivation and processing of tomatoes characterizes various areas of Italy, a country in which the tomato is one of the most important components of agricultural food production. Processing firms have large amounts of capital in terms of equity capital and/or debt to support investment in fixed assets (buildings, plants and equipment for tomato processing) and working capital (inventories, including finished goods and accounts receivable). Since firms in the sector are often Small and Medium Enterprises (SMEs), it is important to identify correct ratios of analysis because SME enterprises have generally limited access to capital markets (stock market, venture capital, private equity) and debt financing (bank loans, structured finance, syndicated loans) as evidenced in several researches (Grablowsky, 1984; Dunn and Cheatham, 1999; Peel and Wilson, 1996; Molina and Preeve, 2009; Bonazzi and Iotti, 2014b)
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