Key Financial Indicators Research Articles

A Framework to Measure the Financial Performance of Local Governments

A framework to assess the financial performance of local governments is presented in this paper. The framework adapts and extends an earlier methodology and includes new financial performance measures reflecting considerations in the literature of appropriate financial performance measures for local government units. Using 14 indicators, five broad financial performance measures are employed, assessing liquidity, autonomy, operating performance, collection efficiency and solvency. We apply this numerical and narrative analysis of key financial performance indicators to Ireland’s primary local authorities during the recent boom and bust period. Through application of this financial performance measurement framework using a benchmarking methodology, we identify relatively strong and weak local authority financial performance. We recommend the adoption of this framework as an extension to the annual financial statements of local authorities to help users more easily assess financial performance and to distinguish between relatively well-performing councils and those showing signs of financial trouble, with a view to early identification of councils in financial difficulty.

Demand-following or supply-leading: an examination of the finance-growth nexus in selected sub-Sahara African countries

This study assesses the extent to which economic growth has been influenced by financial sector development in sub-Sahara Africa. In order to empirically determine the flow of causation between financial sector development and economic growth, country-specific time series data on key financial development indicators was utilised to implement various tests for causality. The results from causality tests reveal that, whilst causation flows purely from growth to financial development for Benin, Congo, Nigeria and Zambia, the reverse holds for Chad, Cote d'Ivoire, Mauritania and Kenya. The study also reveals bilateral causation between financial sector development and growth for countries like Burkina Faso, Cameroon, Malawi, Mali, Sierra Leone and South Africa. It however fails to establish significant causal effects between financial development and growth for Ghana, The Gambia, Senegal, Swaziland and Uganda.

Global, regional, and country-specific components of financial market indicators

This paper studies the global, regional, and country-specific components of four key financial market indicators: sovereign CDS spreads, equity indices, exchange rates, and EMBI Global bond spreads. In all four markets, the results support the findings of the literature of a significant global component, but also point out the importance of regional correlations. Variance decompositions point to roughly a third of variance explained by both global and country-specific components in each of the four analysed financial markets, although there is considerable cross-country heterogeneity in this respect. The global factors of indicators are correlated across asset classes, but the market- and country-specific components of indicators are still significantly large to suggest diversification benefits of both multi-asset and multi-country portfolios. An application of the factor model suggests that the link between Central Eastern European and Euro zone periphery markets is stronger and more direct in the case of equity indices than in the case of sovereign CDS spreads.

Revenue Reserves and Financial Performance in the Brewery Industry: Evidence from Nigeria.

The research evaluates the co-integration, magnitude and strength of the relationships between corporate retentions as proxied by retained earnings and some key financial performance indicators, in the Nigeria manufacturing industry using the Brewery sub-sector as a focal point. The ex- post facto research designed which made use of secondary data obtained from annual reports and accounts of the two market leaders in the sector: Nigeria Breweries Plc and Guinness Nigeria Plc, from year 2000 to 2013.The magnitude of association of the variables was validated using the ordinary least squares method. Augmented Dickey- Fuller (ADF) test was also conducted on all the variables to check for stationary of time series data. Log of retained earnings, current asset ratio, dividend per share attained stationary at first difference, while earnings per share, net asset value per share, price -to- earnings ratio and market price of equity shares, achieved stationary at second difference. Results indicate that a strong relationship (about 77%) exist between retained earnings and net asset value per share. Also long run relationship exists between retained earnings, and the rest of the variables implying that, if the retained earnings are properly invested, the returns will catalyze growth, development and expansion of the firms while the financial performance indicators will serve as predictors to the appropriate levels of retentions and investment which could guarantee good bottom line without incurring the opportunity cost of excess liquidity.

Relationship between Free Cash Flow and Corporate Performance Evidence from the Listed Real Estate Companies in China

There is no consensus on the impact of free cash flow upon corporate performance. Based on the data from 2006-2012 of all listed real estate companies in China, authors studied the relationship between the free cash flow and performance of these firms. Using principal component analysis and regression analysis, key financial performance indicators were calculated out of 18 financial performance indicators, and these key indicators of sample companies were correlated to their free cash flow. The results showed that the free cash flow of a company is negatively linear-correlated to its performance, i.e., too much free cash flow will lead the corporate performance to decline. Therefore, the investors and the managers should avoid business inefficient because of too much free cash flow, which triggers the investment risk and loss.

The Impacts of IFRS Adoption on Key Financial Ratios in UK Market - Over FTSE 100 Firms Through 2003-2007 Years

This paper has two contributions to the International Financial Reporting Stands (IFRS) adoption literature. First is the scrutinizing impact of IFRS adoption on value relevance in the UK with TEST-A analysis under the H01 hypothesis. The second contribution is capturing the impact of IFRS adoption on key financial indicators of firms with the TEST-B analysis that hypothesizes H02. The statistical differences of items of two different reporting standards are examined with non-parametric tests as all input variables failed the Shapiro-Wilk and Lilliefors normality tests in TEST-A. The finding rejects the H01 hypothesis for BvMv, and agrees that IFRS has impact on value relevance. Besides, Ohlson’s (1995) model documents that the coefficient of dummy variable (MODE) is positive. Therefore, the analysis concludes that IFRS has positive impact on value relevance. The aftermath of TEST-B rejects the H02 hypothesis for all profitability ratios (ROE, ROCE, ROA, PM) and gearing ratios (GR). It concludes that profitability and gearing ratios are affected by IFRS adoption, whereas efficiency-liquidity ratios are not. Also, in Forward Stepwise regression analysis only ROCE, ROA, and PM ratios show significant results. The analysis documents positive and significant impact of IFRS on these three ratios.

Growth in Public Finances as Tool for Control: Norwegian Development 1850-1950

By drawing on information from public accounts from the nineteenth and twentieth century the present paper aims at mapping the development of key financial indicators for the Norwegian central government sector. It concludes that growth in the size of this sector often, but clearly not always, reflects political economy regimes. The paper concludes that persistant growth in public finances as tool for control over the economy did not take place before the introduction of the social-democratic regime in 1935.

The Process to Estimate Economical Benefits of Six Sigma Projects

This paper seeks to define the process for the continuous evaluation of the financial benefits during Six Sigma project life time. The financial criteria are critical success factors of a Six Sigma project. The process has been developed as part of the six sigma project monitoring in order to estimate proper allocation of the resources taking in account the expected project benefits as well as evaluationof real achievements. The evaluation of the finacial benefits based on the quality costs is not sufficient in the real life and has to be accomplished with key financial performance indicators of the business to visualize the results. The evaluation based on the savings seems to be too difficult especially for green belts. The early involvement of the finance department in the project definition as well as ongoing evaluation is key. The defined process has been applied to real business enviroment.

An examination of the relationship of IT control weakness to company financial performance and health

PurposeThe purpose of this study is to investigate the relationship of weaknesses in IT‐related internal controls to companies' overall financial performance and health.Design/methodology/approachThe study examines four accounting measures: liquidity, solvency, profitability, and market value. During the four‐year period of 2004‐2007, the authors identified companies that reported at least one material IT weakness and matched them with a similar set of companies with no reported material weaknesses. Additionally, for a subset of the companies in which a good match could be identified, a second data set was developed for comparison of companies reporting only material non‐IT weaknesses.FindingsAs expected, companies reporting IT weaknesses experienced less of an ability to pay short‐term and long‐term debts, earned lower profits, and possessed lower market value than companies with no weaknesses. Companies reporting IT weaknesses experienced worse financial performance and health than companies with non‐IT weaknesses.Research limitations/implicationsAt the time of this study, most foreign registrants listed on US stock exchanges had not completed and filed their initial SOX 404 assessment with the SEC. Furthermore, small public companies (i.e. under a $75 million market capitalization) were not required to comply with 404 reporting requirements at the time of this study. In addition, Compustat provides information only on publicly traded companies.Originality/valueThe current study builds on IT governance research in two key ways. First, academia and industry must move past the discussion of IT governance design to examine the performance of IT governance efforts (i.e. effectiveness of controls audited by an independent third party) in relation to key financial performance and health indicators. Second, this study uses more objective measures of IT governance than were available in the past (i.e. the internal control and financial data reported in companies' audited financial statements). The results provide insight into the relationship of IT governance to overall financial well‐being.

Financial performance of publicly‐traded agribusinesses

PurposeAgribusinesses represent a fundamental link in connecting farmers with retailers and consumers, yet little research has been done to examine the historical financial performance of these food processing firms. This paper aims to address this issue.Design/methodology/approachThe authors' research examines how publicly‐traded agribusinesses perform financially compared to all firms over the period from 1961 to 2011. The authors utilize several indicators of company success, including financial ratios and balance sheet/income statement items, to compare agribusiness firms to all firms in the market. The authors perform the analysis over time and also for companies with low, median, and high performance. They also perform Du Pont analysis to compare return on equity components between agribusinesses and all firms.FindingsThe authors find that agribusinesses outperform at the median the sample of all firms in terms of financial ratios related to profitability, liquidity, and market ratios, but have slightly lower liquidity and debt ratios. The Du Pont analysis shows that the higher return on equity for agribusinesses is mostly due to higher asset turnover ratios, indicating higher operating efficiency of agribusinesses. The strong financial performance of food manufacturing agribusinesses makes them valuable companies in an investment portfolio.Originality/valueThis study provides a basic overview of financial ratios used to examine the financial performance of publicly‐traded agribusinesses. The authors' findings show that agribusinesses outperform all firms in terms of key financial indicators.

MODERN PROBLEMS AND WAYS OF DEVELOPMENT OF COOPERATION

The article discusses the importance of cooperation on the current economic stage as one of the forms of cooperation in the arena of the market of small, medium and large businesses. The aim of this work is the study of contemporary problems of agricultural co-operation and development of effective ways of functioning of the cooperative sector, which is a sustainable development factor of socio-economic systems, contributes to the protection of the interests of its participants, increasing of competitiveness at the industry and national markets. In compliance of the objectives outlined the following objectives of its decision: - to justify the relevance of research in modern Economics; - to analyze the economic interdependence of market subjects and their effectiveness in key financial indicators; - identify the causes, constraining the effective development of the cooperative forms of management. The scientific novelty of the results of the study consists of the following: - it is proved that the basic idea of the cooperative movement is a transition from small businesses to large-scale activity, which today has a real embodiment in life; - it is proved that co-operation is a key element of sustainable development of rural areas and market institutions and is based on a solid social base of farms, individual farms; - as a result of the carried out estimation of parameters of functioning of the agrarian market subjects, proposed an alternative way of economic interaction of participants of the cooperative company. As a conclusion it should be noted that the development of the cooperative sector in economic realities increases significantly in the conditions of Russia's accession to the WTO, ensuring competitiveness of the domestic products and first of all the country's food security. DOI: http://dx.doi.org/10.12731/2218-7405-2013-1-28

Exploratory Research on Earnings Forecast Model-Based on Chinese Manufacturing Companies

This paper takes China's manufacturing listed companies as an example, applies matching T test to select key financial indicators, uses factor analysis to determine the main factors, and explores company earnings forecast models by comparing different kinds of stepwise regression plans. Empirical results showed that by means of properly linear combination of key financial indicators from this year, it is possible to estimate the earning, EPS, for next year. The accuracy of the forecast can reach 80% for Top 10 profitable enterprises, and 62% for Top 100, which validated the effectiveness of this exploration for earnings forecasting. Finally, based on the prediction model, the authors put forward some suggestions for improving financial management of listed companies.

Hospital Financial Management: What Is the Link Between Revenue Cycle Management, Profitability, and Not-for-Profit Hospitalsʼ Ability to Grow Equity?

Effective revenue cycle management--from appointment scheduling and patient registration at the front end of the revenue cycle to billing and cash collections at the back end--plays a crucial role in hospitals' efforts to improve their financial performance. Using data for 1,397 bond-issuing, not-for-profit US hospitals for 2000 to 2007, this study analyzed the relationship between hospitals' performance at managing the revenue cycle and their profitability and ability to build equity capital. Hospital-level fixed effects regression analysis was used to model four different measures of profitability and equity capital as functions of two key financial indicators of revenue cycle management--amount of patient revenue and speed of revenue collection. The results indicated that higher amounts of patient revenue in relation to a hospital's assets were associated with statistically significant increases in operating and total profit margins, free cash flow, and equity capital (p < 0.01 for all four models); that is, hospitals that generated more patient revenue per dollar of assets invested reported improved financial performance. Likewise, a statistically significant link existed between lower revenue collection periods and all four indicators of hospital financial performance (p < 0.01 for three models; p < 0.05 for one model). Hospitals that collected faster on their patient revenue reported higher profit margins and larger equity values. For revenue cycle managers, these findings represent good news: Streamlining a hospital's management of the patient revenue cycle can advance the organization's financial viability by improving profitability and enabling equity growth.

To Standardize or Not to Standardize Financial Liquidity Ratios? The Answer Using Financial Liquidity Efficiency of Investment Model (FLEIM)

There is a myth about standardized financial ratios. It is believed that Current Ratio should be near to 1,5; Quick Ratio should be higher than 1; Cash Ratio should be no smaller than 0,7. Paper shows other perspective of the problem using financial liquidity efficiency of investment model (FLEIM) and Polish data for key financial liquidity indicators. Market situation influence enterprise ability to generate value for its owners depending on kind of business and individual enterprise flexibility and risk sensitivity. Enterprise financial liquidity management can reduce risk influence on enterprise results. The paper, presents the consequences that can result from operating risk that is related to liquidity policy in the context of enterprises. An increase in the level of liquid assets in an enterprise increases both net working capital requirements and the costs of holding and managing financial liquidity. Both of these decrease the value of the enterprise. But not always it works in the same way, it depends on risk sensitivity of the business which differ between branches and individual representatives from each branch. Case study data presents and is an material for discussion about general model presented in first part of the paper. The relation between liquid levels and risk sensitivity is also illustrated by empirical data from Polish firms.

Macro Prudential Supervision Tools in the European Banking System

The recent financial crisis has reoriented policymakers from micro prudential supervisory to systemic orientated regulation and macro prudential supervisory frameworks. This paper presents a macro prudential approach for monitoring the banking system soundness in the European Union. Using panel data techniques we have estimated the impact of the macroeconomic environment on two key financial soundness indicators of banking systems from 27 countries. Also, we have developed a macro prudential supervisory framework for identification and monitoring the systemic risks, from both backward and forward-looking perspectives.

An Investigation of the Economic Performance of Sustainability Reporting Companies Versus Non-reporting Companies: A South African Perspective

This study explores the potential differences in the economic performances of companies that report on their sustainability information and those companies that do not report thereon. Even though there have been similar studies conducted in 1st world countries, this is the first study of its kind in a developing economy, and considers the economic performances of South African publicly listed companies. Annual performance data, from 2002 to 2009, for the two groups of companies was taken from the McGregor BFA database. The significance of the average differences between key financial indicators of the test-group and the control-group was determined by the t-test, while the difference of positive or negative Economic Value Added and Market Value Added values between these two groups was also evaluated. Even though some evidence indicates that companies that disclose sustainability reports may experience better economical performance, the statistical analysis could not confirm a definite positive relationship between sustainability reporting and economic performance.

Financial Stakeholder- Approach to Implementation and External Analysis of Corporate Strategy: Methodical Realization of Enlightened Value Seeking

In a question of corporate objective function the opposition of shareholder and stakeholder model proceeds. Its solution will have fundamental importance for modern theory and practice of strategic management, corporate governance and finance. Michael Jensen has suggested to create the theory of 'enlightened' value maximization which would be based on the interests of many stakeholders. The initiation of 'enlightened' approach conceptually has linked these two models, but has not solved the main problem – a quantitative estimation of stakeholder interests balance. Among the most important and complex corporate problems, where a great number of contradictory and competitive stakeholder interests simultaneously collide, is working out and implementation of corporate strategy. Criterion of strategy realness (realizability, feasibility) consultants often call coordination and balance of key stakeholders (influence groups) interests, while insufficient attention to this question from leadership - one of principal causes of various strategic failures - unfulfilment of terms or not achievement of the key financial indicators declared to investors. Financial stakeholder-approach is developed in this article for formalization, modeling-methodical realizations of the 'enlightened' idea. It includes the analysis, estimation and mathematical balancing of economic and financial stakeholder interests, as a common base of interests is considered the financial model of corporate strategy. This approach also offers a technique of the quantitative estimation of interests balance/conflictness, which can be used in the investment analysis, risk-management and other areas. Financial stakeholder-approach can be considered as an alternative or addition to the Balanced Scorecard. Boards of directors, the divisions of management companies responsible for strategic and investment planning, and also various investment analysts, consulting firms, rating agencies are supposed to use the approach in practice. In theory the work can be useful for the further discussion and rapprochement of the shareholder and stakeholder approaches supporters.

An Investigation of the Influence of Key Financial and Economic Indicators on Profitability of Cement Sector Companies in Pakistan

For any business concern the net profit or bottom line for a particular time period is the end result of its investing, financing and operating activities. These activities can be visualized as being influenced by management’s decisions and a host of internal and external environmental factors. This paper investigates how profitability of firms, in the cement manufacturing sector of Pakistan, is influenced or linked to selected financial and economic indicators. The purpose of the research is to check whether the linkage of profitability with the selected indicators is in line with the relevant generally accepted theory. Also, if there appear to be some deviations from the theory, what the plausible reasons are which can explain these. Furthermore, the conclusions arrived through data analysis might lead to some useful policy recommendations for Pakistani cement companies, to better manage their profitability.

Case study: Al Amana of Morocco

PurposeThe United Nations General Assembly adopted 2005 as the Year of Microcredit, recognizing the link between inclusive financial systems and the economic development of those most at need. Microcredit, or more broadly microfinance (MF) has a role to play in facilitating growth through the provision of credit to entrepreneurs. Association Al Amana for the Promotion of Micro‐Enterprises Morocco (Al Amana) is an unusually successful microfinance institution (MFI) registered as a non‐profit organization in Morocco. Starting in 1997, with capital provided by USAID, it has grown to become the leading MFI within Morocco and the broader Middle East and North Africa (MENA) region. It has seen rapid growth in clients and assets while also reaching a level of financial sustainability uncommon among MFIs. Why has Al Amana been so successful? This paper will seek to examine this question, highlighting key internal and external factors that have contributed to this organization's success.Design/methodology/approachFurther, this analysis will examine Al Amana within its regional enabling environment to highlight those critical issues within an entrepreneurial finance climate that are conducive to MF lending. Additional analysis of Al Amana includes a review of their portfolio, key financial indicators, and other bank strategies that have been instrumental in their financial growth and success. Lastly, the analysis will conclude with a discussion of the key factors that will become important to the sustainability and growth of this MFI as it serves the needs of entrepreneurs in Morocco. The methodology for the research consisted of a literature review of MFI activity in Morocco and the MENA region, an examination of key elements within the enabling environment, and a financial review of Al Amana and its key financial results.FindingsThe results of the research provide a case study of a successful MFI that is contributing to the development of entrepreneurs in its region. It will also highlight the specific organizational factors as well as key elements in the enabling environment that have facilitated the success of Al Amana.Originality/valueThe paper highlights the success of Al Amana in Morocco and presents some of the challenges facing the organization.

Proposed Changes in Lease Accounting and Private Business Bankers' Credit Decisions*

ABSTRACTThis study contributes to the debate on lease accounting currently ongoing at the international level and to future discussions at the Canadian level for private enterprise standards following a potential revision of lease accounting in international financial reporting standards (IFRS). A user perspective is adopted to examine private business bankers' preferences on the issue of capitalizing all noncancelable lease contracts, including operating leases, as suggested by the G4+1. While bankers use both capital and operating lease information, they give significantly more consideration to the former when analyzing private business loan requests. Accordingly, operating lease information receives less attention than capital lease information in the credit‐granting decision process. In addition, private business bankers consider a number of aspects of the current lease accounting standard to be inadequate and are in favor of the principles governing the approach suggested by the G4+1. They feel that the capitalization of operating leases would improve their ability to evaluate lessees' long‐term financial commitments and increase their estimates of the risks involved in providing financing to lessees. This study also demonstrates that the capitalization of operating leases would have a significant impact on key financial indicators of a sample of Canadian private companies. Bankers perceive that these realistic changes in financial indicators would affect their assessment of borrowers' capital structure/solvency, liquidity, ability to repay, and risk rating. From a cost‐benefit perspective, the findings provide standard‐setters with an indication of the benefits of the G4+1 proposals to users.