Earnings Before Interest And Taxes Research Articles

The Relationship Between EBIT/Total Revenue and Annual Returns: A Study of Leading Technology Companies

This study examines the relationship between Earnings Before Interest and Taxes (EBIT)/Total Revenue and annual returns for four leading technology companies: Amazon (AMZN), Alibaba (BABA), Google (GOOG), and Baidu (BIDU). Using data from Yahoo Finance from 2018 to 2022 and applying regression analysis, the study finds a significant positive relationship between EBIT/Total Revenue ratios and annual returns. This suggests that higher EBIT/Total Revenue ratios may be associated with better annual returns. However, limitations include a narrow sample size and time frame, which may affect the generalizability of the results. Future research should consider a broader sample and longer time periods.

Measuring business impacts on the sustainability of European-listed firms

The Environmental, Social, and Governance (ESG) themes assume a central position in the foundation of business strategies and risk management for both private managers and financial institutions. Measuring the sustainability commitment of listed companies is required by regulators and Monetary Authorities and plays a pivotal role in the selection process for asset management companies. ESG ratings are used to assess the company’s commitment to sustainability. This paper explores how a firm business, measured by balance sheet data, influences the ESG rating. In particular, we focus on Europe, which countries first paved the way for the sustainable transformation of the economy through various policies and initiatives. We employ a Machine Learning approach to discern the non-linear relationships between ESG ratings and corporate data aiming to identify the prime factors influencing the ESG ratings. We can assess potential country or business sector-based discrepancies by selecting a sample containing firms listed on the major European indices (AEX, BEL, CAC, DAX, FTSE, FTSE-MIB, IBEX, OMX). We find that the firm size, measured by total assets, and the carbon intensity are the variables that most influence the ESG rating in countries where the economic sectors rely mainly on the business cycle and economic conditions. For companies operating in the technology, financials, and industrial sectors, the main ESG driver is the asset turnover ratio, which is a measure of the efficiency with which a company generates revenues, and the EBIT to revenue, which is a measure of the operating margin asset turnover and the Earnings Before Interest and Taxes (EBIT) to revenue ratio. We discover diverse factors affecting ESG ratings across various European countries, highlighting the impact of each nation’s policy on ESG commitment.

Navigating the Cascading Ripples: A Study on the Interplay between the COVID-19 Recession and the Financial Fortunes of Micro Finance Institutions (MFIs)

Purpose: The success of Micro Finance Institutions (MFIs) hinges on effective decision-making amidst challenging economic circumstances, necessitating the ability to anticipate and navigate future business conditions. This research aims to explore the relationship between financial performance and the COVID-19 pandemic's impact on MFIs listed on the National Stock Exchange (NSE) in India. By analyzing financial data and employing statistical techniques, the study seeks to elucidate the resilience of MFIs during the pandemic and the role of financial ratios in predicting earnings per share (EPS). Additionally, the research aims to contribute to a deeper understanding of the interplay between financial indicators and organizational outcomes within the microfinance sector. Design/Methodology/Approach: This research adopts a quantitative approach, utilizing secondary data obtained from quarterly financial reports of selected MFIs listed on the NSE from 2018 to 2022. Statistical analyses such as paired t-tests, correlation, and regression are employed to assess the impact of the COVID-19 pandemic recession on MFIs' profitability and to investigate the relationship between financial ratios and earnings per share (EPS). Findings/Result: Despite the COVID-19 pandemic recession, the profitability of Indian Micro Finance Institutions (MFIs) remained largely unaffected, as indicated by non-significant differences in earnings before interest and taxes (EBIT) before and after the pandemic. Regression analysis highlighted significant influences of financial ratios like the current ratio, total asset ratio, net profit ratio, and gross profit ratio on earnings per share (EPS), underscoring the sector's resilience and the importance of financial analysis in predicting MFI performance. Originality/Value: This research offers novel insights into the resilience of Indian Micro Finance Institutions (MFIs) during the COVID-19 pandemic and underscores the significance of financial analysis in guiding strategic decision-making processes within the microfinance sector. Paper Type: Empirical Research.

A Comprehensive Examination of Corporate Governance's Impact on the Cost of Equity: Evidence from Pakistani Non-Financial Listed Firms

Purpose: This study explores the intricate relationships between various corporate governance variables and the Capital Asset Pricing Model (CAPM) as a proxy for the cost of equity for non-financial firms listed on Pakistan Stock Exchange (PSX) during the period from 2011 to 2020.
 Design/Methodology/Approach: Employing a convenience sampling approach and fixed effects regression to account for unobserved heterogeneity, the research discerns both significant and non-significant associations, offering insights into the unique dynamics of the Pakistani financial landscape.
 Findings: Notable findings include direct and statistically significant association between BETA and CAPM, as well as the influential role of CEO duality. The Coefficient of Variation (CV), Earnings Before Interest and Taxes (EBIT), and governance-related factors like the governance index and insider ownership exhibit significant associations with CAPM. Conversely, board size, board independence, market-to-book ratio (MBR), and market debt ratio do not show statistically significant impacts on the cost of equity.
 Implications/Originality/Value These nuanced results contribute valuable insights for financial decision-makers and policymakers operating within the specific context of the PSX.

Impact of ICT Sector Research and De velopment Expenditure on the Market Capitalization in the US, the EU and China

Purpose: Due to the growing global role of enterprises from the information and communication technology sector from the leading regions of the USA, EU and China in the industry, the author’s research goal was to try to identify factors influencing the value of listed enterprises understood as its stock exchange capitalization. For the purpose, research was carried out on the impact of a group of twenty-six variables on the company’s market capitalization, among which the most important conclusions concern the impact of seven variables, i.e. revenues, research and development expenses, earnings before interest, taxes, depreciation and amortization (EBITDA), earnings before interest and taxes (EBIT), total equity, total assets, total revenues and dividend rate. Design/Methodology/Approach: The study used research methods in the form of a random effects model and a fixed effects model, and then used the Hausmann test to verify which of the models is better suited to establishing the relationship between the selected independent variables and the dependent variable in the form of the stock market capitalization of companies from the ICT sector. Findings: It was found that the impact of equity or the level of revenues on market capitalization is much smaller than in the case of research and development expenses and that the issue of depreciation of assets is an important factor in the market valuation of enterprises from the ICT sector. Additionally, the level of assets and equity has, although limited, impact on the market valuation of the company, regardless of the region in which an entity operates. Revenues are important from a regionalization perspective – company’s market capitalization is the largest in the case of the ICT services subsector in China. There is no similar relationship among manufacturers of ICT devices operating in all three regions. Research limitations/Implications: Due to the fact that the COVID-19 pandemic and the global economic slowdown are important factors affecting the ICT sector, further research on the value of ICT enterprises should take the aspects into account.

Biodiesel and fishmeal from Nile tilapia waste: process, techno‐economic, and Monte Carlo analyses

AbstractWaste from the fish processing industry can provide a profitable and sustainable business. Industrial fish by‐products can be used as raw material to produce biofuels. This work evaluates the production process, characterization, and economic analysis for the production of biodiesel and fishmeal from tilapia processing waste. It demonstrates the potential of neutralized tilapia oil as a valuable raw material for biodiesel production. It presents specific mass, viscosity, and flash point results in line with ASTM and EN standards. Different plant sizes are modeled to evaluate biodiesel economic viability. Only the largest plant size was economically viable. In this case, the net present value (NPV) of US$ 13.89 million, the internal rate of return (IRR) of 50%, and the earnings before interest and taxes (EBIT) of US$ 7.87 million/year showed that the production of biodiesel and fishmeal using tilapia waste is economically attractive. Monte Carlo simulation was used to analyse the price distribution of biodiesel and fishmeal and their effects on the plant size. A large plant size gave 100% good scenarios, whereas a medium plant size showed 25% beneficial scenarios, and small plants did not have good scenarios. In this context, the plant size can overcome risks from price variability. The economic evaluation revealed that the production scale and the factory's location influenced the project's viability directly as raw material costs are associated with transportation expenses. The study therefore indicates that not all countries with well established tilapia production can produce biodiesel in a viable and sustainable way.

Do companies that generate profits make economic value added?

This paper focuses on determining the differences between economic value added (EVA), net operating profit after tax (NOPAT), earnings before interest and taxes (EBITDA), and net income or loss for non-financial business entities operating in the Republic of Croatia in the period 2002–2021. The main objective of this paper is to determine whether non-financial activities create economic value added, and rank them according to selected indicators based on EVA. Research results indicate that there were only 27 out of 309 cases where EVA was positive, indicating that only the information and communication sector generated, on average, positive EVA during this twenty-year period. Positive EVA was generated in certain years in companies conducting human health and social work activities, education, mining, and quarrying, as well as in wholesale and retail trade activities, but the average EVA for this twenty-year period in these sectors was negative. At the same time, net income was achieved in 246 cases, and NOPAT in 285. Meanwhile, EBITDA was positive in all cases, demonstrating an obvious discrepancy between EVA and other financial performance measures. Correlation analysis results indicate that there is a statistically significant moderate correlation between EVA and net income/loss, although the correlation is generally stronger between EVA and EBITDA-based indicators. According to research results, the answer to the question in the title of this paper is negative, emphasizing the possibilities of intensive introduction of EVA as a financial performance indicator.

Firms' profitability and ESG score: A machine learning approach

AbstractCorporate social responsibility (CSR) is found to impact firms' performance, for instance, enhancing reputation, increasing innovation capabilities, customer loyalty, and customer satisfaction help improve financial performance. However, the literature provides limited evidence of the relationship between CSR indicators, such as the ESG score, and the firm's profitability, which is often measured by the earnings before interest and taxes (EBIT). We investigate this issue by analyzing a sample of about 400 companies constituting the EuroStoxx‐600 index, from 2011 to 2020, using different machine learning models. The novelty of our contribution lies in assessing whether the ESG score has a significant influence on the firms' profitability. Specifically, we investigate the relationship between ESG score and EBIT using machine learning interpretability toolboxes such as partial dependence plots and individual conditional expectation. Tools which help to measure the functional relationship between the predicted response and one or more features, while the Shapley value allows to examine the contribution of the feature to the prediction. Our findings show that the model can reach high levels of accuracy in detecting EBIT and that the ESG score is a promising predictor, compared to other traditional accounting variables.

Applying artificial intelligence techniques for predicting the environment, social, and governance (ESG) pillar score based on balance sheet and income statement data: A case of non-financial companies of USA, UK, and Germany

Due to globalization, environment, social, and governance (ESG) issues have gained importance over the last few decades. ESG is a worldwide issue, which clarifies that organizations throughout the world are lacking in contribution to the environment, society, and corporate governance characteristics for sustainable development. The problem of ESG spread over all stakeholders needs to be addressed. In this regard, rating agencies also have a close eye on ESG issues and have developed the methodology of score that aims to provide disclosure on ESG metrics which, in return, help investors and asset managers better differentiate between responsible and irresponsible companies. The ESG score has become an important tool among asset managers but is highly questioned in terms of reliability. The study objective was to develop machine learning algorithms to assess how balance sheet and income statement data impact the Thomson Reuters ESG score for non-financial public companies of USA, UK, and Germany from 2008 to 2020. In addition, the study also has an objective to assess which machine learning (ML) algorithm better predicts the ESG score using structural data, that is, return on assets (ROA), return on equity (ROE), earning per share (EPS), earnings before interest and taxes (EBIT), dividend yield, and net sales. The results concluded that balance sheet and income statement data are critical in explaining the ESG score, and the ANN algorithm outperforms with minimum RMSE and MAE values. All in all, the results of the study, based on the concept of artificial intelligence, bring suggestion for improvement to regulatory bodies, researchers, academia, practitioners, publicly listed companies around the globe, and last but not the least to the US, UK, and Germany markets. Moreover, it also provides suggestions for up-to-date compliance of ESG-relevant activities for boosting the firm performance.

THE IMPACT OF HUMAN CAPITAL VALUE ON HUMAN CAPITAL EFFICIENCY AND BUSINESS PERFORMANCE

In the knowledge economy era, human capital is a part of intellectual capital and a significant factor in enterprise competitiveness. The importance of human capital is often diminished due to the accounting expression of investments in human resources in the income statement as a cost (expenditure) component. This paper points to the fact that the cost of human resources is an investment that affects the growth of the business performance of an enterprise. Hence, the aim of this paper is to examine the impact of human capital value on human capital efficiency and business performance indicators, such as sales revenue (SR), earnings before interest and taxes (EBIT), and EBIT margin (EBITM). To examine this impact, empirical research is conducted on a sample of 24 companies with the highest brand value for the period 2012-2019. The regression analysis results show that sales revenue and EBIT grow by 0.77% and 1.1% respectively as human capital value grows by 1%. Additionally, findings reveal that the growth of the human capital value negatively affects the values of human capital efficiency indicators and EBIT margin in the sample of examined enterprises.

Technology Readiness and Economic Benefits of Swappable Battery Standard: Its Implication for Open Innovation

The innovation of electric motorcycle swap-battery (EMSB) technology encourages the formation of a new ecosystem at the early stage of the supply chain. The EMSB technology has allowed an open innovation system with collaboration between supply-chain players, universities, and the government for finding a thriving solution to enable the faster adoption and diffusion of EMSB in Indonesia. Standardization is seen as a way to accelerate the downstream EMSB technology innovation to leverage the economic benefits and to support the growth of a green economy in Indonesia. This study aimed to propose a model with which to measure the technology readiness of the EMSB’s stakeholders in implementing the swappable battery (SB) standard. We developed the technometric framework and Economic Benefits of Standards—ISO Methodology 2.0. We generated 13 criteria of technoware, humanware, inforware, and orgaware and 21 indicators of the standard’s impacts to be utilized as a measurement model. We interviewed 11 respondents consisting of the standard regulator, research and development center, manufacturer, testing labs, and product-certification bodies. The results show the technology contribution coefficient (TCC) and earnings before interest and taxes (EBIT) value representing the SB standard’s feasibility. The proposed model can evaluate the weak points and propose strategies to leverage the SB standard’s technology readiness and economic benefits.

The effect of digital transformation on firm performance: evidence from Swedish listed companies

PurposeThe objective of this research is to examine empirically the effects of digital maturity (DM) on the firm's financial performance as measured by return on assets (ROA), return on equity (ROE) and Tobin's Q.Design/methodology/approachThe authors use a panel data sample of 92 observations collected from 23 listed firms on Sweden's stock exchange over four years, 2015–2018. The authors hand collect DM from the digital leader's reports and collect financial data from DataStream. Using both static and dynamic panel (generalized method of moments (GMM) estimation) regression models to perform endogeneity problem, the authors explore the impact of the DM index on ROA, ROE and Q of Tobin.FindingsThe results show that DM has a negative effect on ROA and ROE but a positive effect on Q of Tobin. This negative relationship can be explained, by the fact that information technology (IT) investment and the DM could take years to be materialized and to be captured by performance indicators. Company investment in IT will increase and basically the ROA will be negatively affected because the higher value of IT assets is not amortized. Nevertheless, in the long term, company can maximize its performance. The positive effect on Q of Tobin captures the long-run effect of digital transformation.Research limitations/implicationsThis research can be helpful for firms in their process of digital transformation to succeed with the change, create value and to understand the challenges they have to face. In the short term, firms undertaking digital transformation will face some financial difficulties which affect negatively their ROA and ROE, but in the long term they can maximize their performance (captured by Tobin’s Q) and improve their market value.Originality/valueIn previous research, the impact of digital transformation on performance has been measured in terms of revenue growth, profit margins and in terms of earnings before interest and taxes (EBIT). Even if the authors have sufficient evidence of the positive effect of digital transformation on organizational performance, there is no support of the positive effect on financial performance. So, the authors try to fill this gap. This research has also the merit of examining this relationship empirically through a dynamic panel data estimation two-step system GMM, while the majority of previous studies are qualitative in nature based on interviews and questionnaires or simple correlations.

Evaluation of Enterprise Value of Securities Firms Listed on the Vietnam’s Stock Market

Enterprise value is the total value of all assets under the current ownership of the enterprise. Earnings before Interest and Taxes (EBIT) is the profits from business activities. Earnings before interest, taxes, depreciation and amortization (EBITDA) is a financial ratio that illustrates the business’s profits before deducting interests, depreciation and income taxes. The main purpose of this study is to empirically test financial indicators of securities firms listed on the Vietnam’s stock market. For this purpose, in this study we evaluate two (2) financial indicators of securities firms listed on the Vietnam’s stock market, including (i) Enterprise value to Earnings before interests and taxes (EV/EBIT); and (ii) Enterprise value to Earnings before interest, taxes, depreciation and amortization (EV/EBITDA). The results of the research show that financial indicators of securities firms listed on the Vietnam’s stock market have many significant differences. Therefore, managers may enhance the firm performance of their firms by specific measures and securities firms need to focus on measures to improve profit to raise enterprise value. This study will benefit the securities firms listed on the Vietnam’s stock market in the improvement of their firm performance.

Business Model Quantification Framework for the Core Participants of the EV Charging Market

The rapid growth of the electrical vehicle (EV) market over the last decade has rendered the existence and accuracy of the business models of the EV charging market a critical factor for a company’s success. To address this issue, this paper presents a quantification framework for the business models of the core participants of the EV charging market, defining the factors that directly influence their revenues and costs and providing two sets of earnings before interest and taxes (EBIT) formulas: explicit and implicit. The explicit formulas would be useful for business analytics of the current participants of the EV charging market, while the implicit could be applied by the new entrants, to make reliable predictions based on the benchmark data. These formulas include factors that have not been previously addressed in the literature such as different prices per type of charger, the annual consumed amount of energy per charger and their utilization rate among others. Finally, this research applies the defined framework on an EBIT scenario of an archetypical charge point operator, based on real-life data.

The use and usefulness of equity accounting

AbstractIn this study we examine the use and usefulness (value relevance) of equity accounting. Descriptive evidence shows there is a higher frequency of disclosure about the investment in associates than the share of profits. There is also more diversity in presentation and disclosure than reported by the International Accounting Standards Board. The characteristics of firms differ for those that report ancillary disclosures such as assets and liabilities of the associate. Firm characteristics also differ on whether associate income is reported before earnings before interest and taxes (EBIT). Last, we document that equity accounting is value relevant, but not when alternative accounting options (e.g., fair value or proportionate accounting) are available.

Inter-Company Price Revisited: Passage From Monopoly Competition to the Realm of Corporate Financial Reporting

This paper develops a theory of inter-company price or pricing (ICP) within the framework of monopoly competition as a form of imperfect rivalry and performs an analytical application showing its direct association with corporate financial reporting in general and corporate financial statements in particular. For this purpose, cost advantage and operating profit are served as catalysts to build the theory and apply it into accounting practice. In other words, cost advantage and operating profits are considered and constructed as keys to show and explain the interplay between ICP and corporate financial reporting in general and corporate financial statements in particular. Examinations document that given that businesses transact with each other under bilateral monopoly competition; ceteris paribus, the operating profit figure of the business with cost advantage will be higher than the operating profit (OP) figure of the business without cost advantage. Examinations further document that businesses transact with each other under bilateral monopoly competition; ceteris paribus, asset size, earnings before interest and taxes (EBIT), earnings before taxes (EBT) and hence net income/profit after tax (NPAT) figures of the business with cost advantage will always be higher than asset size, EBIT, EBT and therefore NPAT figures of the business without cost advantage.

Financial Performance Measurement of Logistics Companies Based on Entropy and Waspas Methods

Purpose – The aim of this study is to measure financial performance of the logistics companies in the Fortune 500 list. Companies' financials are used to enlighten the logistics sector and supply chain operations by revealing the developments between 2015 and 2019. Design/Methodology/Approach – The performance of the companies is evaluated by utilizing multi-criteria decision-making techniques. As the best performance criteria affecting the companies’ performance is determined by Entropy Method, the company with the best performance is determined by WASPAS Method. Selected financial measurements are net sales, earnings before interest and taxes (EBIT), total assets, total equity, and the amount of export. Findings – It can be reached from the results that Export was determined as the best performance criteria affecting the logistics companies’ performance for all the years between 2015 and 2019. On the other hand, while Netlog is the best alternative in the year of 2015, 2016 and 2019, Borusan is the best alternative in the year of 2017. Discussion – Supply chain and logistics processes have critical importance in delivering the goods and services of businesses to the final consumers. Hence, logistics companies need to determine performance measurements while performing these services. It is believed that this study will be useful for the companies who trade in different sectors and will contribute to the finance literature as a reference for further studies. In this context, because of their quite comprehensive natures, both Entropy and WASPAS methods can be conducted to any manufacturing-related decision-making processes.

What Are the Reasons Behind the Economic Performance of the Hungarian Beer Industry? The Case of the Hungarian Microbreweries

In terms of absolute alcohol consumption and total quantity consumed, beer is the most consumed alcoholic beverage in Hungary. The Hungarian beer industry is highly concentrated, the three largest, foreign-owned companies ruled the market for almost 90% of total turnover in 2009–2017. The study investigates the factors influencing the Hungarian beer industry’s economic performance, special attention given to the microbreweries. The analysis applied panel-data linear models for the period of 2009–2017. The financial performance of breweries is represented by companies’ turnover, Earnings Before Interest and Taxes (EBIT) and profit along with explanatory variables of the age of brewery, Social Media activity, geographical location, direct sales, and impact of tax reduction. Breweries with direct sales channels reached significantly higher sales, EBIT and profit. Breweries situated in or close to the capital are the most profitable due to the higher demand for high-quality beer, in contrast, the distance from the capital had a negative impact on the firms’ performance. The Social Media activity–often used as the only promotion channel for the microbrewery–positively impacts the brewery’s profitability. Finally, tax reduction for small breweries introduced in 2012 had the most significant positive influence on the industry.

ПОКАЗНИКИ EBIT ТА EBITDA В АНАЛІЗІ ФІНАНСОВОЇ ЗВІТНОСТІ: МЕТОДИЧНИЙ ПІДХІД

The article discusses the essence and significance of EBIT and EBITDA indicators, which are used to assess the effectiveness of potential investments. EBITDA discloses the income that is earned in the current period and therefore is used to assess the profitability of investment and self-financing opportunities. The main advantage of EBIT is the ability to compare financial results of competitors with different capital structures and different tax burdens. EBIT is important because it generates resources that the business uses to pay interest and taxes, pay dividends and repay loans. The Profit and Loss Statement summarizes all the profits and losses of the company for the period (year, half year or quarter). It is the logical sequence of the Profit and Loss Statement that makes it possible to calculate both EBIT and EBITDA, and a number of relative profitability indicators. In domestic practice, the information base for the analysis of indicators is the Statement of Financial Results (Statement of Total Income) form 2, which is regulated by the National Regulation (Standard) of Accounting 1 «General Requirements for Financial Reporting» dated February 28, 2013. This form is built on the example of the Profit and Loss Statement, however, it has differences that take into consideration the Ukrainian realities. Interest payments, Depreciation and Amortization and Income tax are not taken into account in calculating the EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). Thus, EBIT (Earnings Before Interest and Taxes) is EBITDA after calculation Depreciation and Amortization. The article provides a generally accepted algorithm for calculating EBIT and EBITDA indicators based on domestic financial statements. However, this approach negatively affects the accuracy and reliability of indicators. Undoubtedly, if all the constituent elements of the calculation of these indicators were combined in one table of the Statement of Financial Results, then the calculation of indicators would give a more accurate result for both investors and the management of the enterprise.

Has UEFA’s financial fair play regulation increased football clubs’ profitability?

ABSTRACT Research question In response to the low profitability of European football clubs, in 2010, UEFA established its Financial Fair Play regulation (FFP) to encourage clubs not to spend more than they earn. We examine whether FFP’s break-even rule has increased the profitability of football clubs. Research methods : We use data from the top five European football leagues (those of England, France, Germany, Italy, and Spain) over the period 2008–2016. Our sample includes 1,094 club-year observations (139 different clubs). Earnings before interest and taxes (EBIT) and profit before tax (PBT) margins are used as profitability measures. The impact of FFP is estimated using the Generalized Estimation Equations (GEE), logistic regressions, and fixed effects OLS models. We control for both domestic and European competition success, leverage, club size, and country/club fixed effects. Results and Findings In the pre-FFP period, roughly 70 percent of observations are losses, whereas in the post-FFP period, roughly 60 percent of observations are losses. However, the estimated positive effect is significant only in Spain, while for England and Germany we find weak evidence. We cannot rule out that the observed improvement in performance is simply caused by the recovery from the financial crisis. The effect of FFP is insignificant in France and Italy. Implications The effect of FFP on clubs’ profitability has been at best modest. We call upon UEFA and its member associations and leagues to expand their efforts to enforce the break-even rule or to reassess the efficiency of current FFP requirements.