Leverage Ratio Research Articles

IFRS ADOPTION AND KEY ACCOUNTING RATIOS: AN EVIDENCE FROM COLOMBO STOCK EXCHANGE

The purpose of this study is to investigate the impact of International Financial Reporting Standards (IFRS) adoption on key accounting ratios of firms listed in the Colombo Stock Exchange (CSE). The study also sought to test if the entity’s sector discriminates the impact that the IFRS adoption has on accounting ratios being evaluated. Descriptive statistics and non-parametric univariate analysis (Mann Whitney U test) were used to compare pre and post IFRS convergence ratios. The researchers tested eleven accounting ratios falling under profitability, liquidity, leverage, and market performance. We randomly sampled 40 firms listed in CSE, 20 each from the service and manufacturing sectors. The study period was ten years from 2007 through 2016, whereby the periods corresponding to pre-IFRS convergence were from 2007 through 2011, and post-IFRS convergence was captured from 2012 through 2016.. We showed that all profitability measures we tested were significantly impacted by IFRS adoption. We infer that the direct comparability of the profitability measures across pre and post-IFRS periods is no longer useful for decision making. In contrast, all liquidity ratios investigated were significantly indifferent between the pre and post-IFRS adoption. We have argued that liquidity measures have not changed considerably due to IFRS adoption and may thus still be comparable across pre and post-IFRS periods. Leverage and market ratios returned mixed results. We also document that the IFRS convergence’s impact on profitability and leverage ratios tends to be influenced by the sector in which firms operate, while its impact is not evidenced in relation to liquidity measures and market ratios. The limitation of this paper is that the effects of firm-specific variables and macro-economic factors on accounting ratios were not controlled. The results are useful for those interested in analyzing the long-term trends of accounting ratios. Our findings will also help the policymakers, standards setters, financial analysts, and future researchers about the behaviors of accounting ratios and quality financial reporting due to convergence to IFRS-based accounting regimes. This study is one of very few works on this topic in Sri Lanka, an IFRS jurisdiction with a developing economy.

PENGARUH RASIO FINANCIAL LEVERAGE DAN LIKUIDITAS TERHADAP PROFITABILITAS PERUSAHAAN SEKTOR MANUFAKTUR PERIODE 2019-2021

This thesis discusses the effect of financial leverage and liquidity ratios on company profitability. This type of research is quantitative research with hypothesis testing. The research sample is the financial statements of 30 manufacturing sector companies listed on the Indonesia Stock Exchange for the 2019-2021 period. The source of research data is secondary data obtained from the official website of the Indonesia Stock Exchange, namely www.idx.co.id. The data
 analyzed are profitability (variable Y) using Return On Asset (ROA) analysis, financial leverage variable (variable X1) using Debt to Asset Ratio (DAR) analysis, and liquidity variable (variable X2) using Current Ratio (CR) analysis. The results of the research that tested the hypothesis obtained data: (1) The financial leverage ratio (DAR) has a negative and significant effect on the profitability (ROA) of manufacturing sector companies on the Indonesia Stock Exchange for the period 2019-2021; (2) The liquidity ratio (CR) has a positive and significant effect on the profitability (ROA) of manufacturing sector companies on the Indonesia Stock Exchange for the period 2019-2021; (3) The ratio of financial leverage (DAR) and liquidity (CR) simultaneously has a positive and significant effect on the profitability (ROA) of manufacturing sector companies on the Indonesia Stock Exchange for the period 2019-2021.

An Assessment of Starbucks' Profitability Through Financial and Operational Strategy

The market was economically weakened as a result of covid-19. Starbucks has long had a considerable market share in the coffee industry, particularly in the United States. Therefore, this article will examine Starbucks' profitability and provide insight into the aspects that influence Starbucks' profitability. Some models will be used to analyze this, including earnings per share, P/E ratio, dividend payout ratio, return on assets, operating margin, sales profit margin, fixed asset ratio, financial leverage ratio, sales to equity ratio, and expense revenue ratio. This article will use the SWOT model to analyze the internal and external influences and the strengths and weaknesses of Starbucks in the market. Based on the analysis, while Starbucks has a huge market share and a great brand image, the pricey product can be a disadvantage during economic downturns. Starbucks' new approach to expanding into new markets will help to counteract the negative image of self-erosion in its primary US coffee market due to overcrowding. This article will explain why it was decided to invest in Starbucks as a corporation. This paper will provide some insight into the operational strategy and profitability of existing competitors to companies wishing to enter the coffee market.

Accounting Ratios and False Financial Statements Detection: Evidence From Nigerian Quoted Companies

The broad objective of the study was to investigate accounting ratios and false financial statements detection. The study was a descriptive survey in design. This study employed pooled data from firms listed in the Nigerian Exchange Group PLC, covering a period of 5 years (2017- 2021). A total of 239 firms quoted on the Nigerian Exchange constituted the population of the study. The study relied on secondary data. Historical data were obtained from the annual financial reports of accounts of 10 purposively sampled service sector firms. Data obtained were analysed using descriptive statistics, Pearson correlation and Pooled Data Binary logit regression analysis. The findings of the study revealed that profitability has a positive relationship with false Financial Statement detection. However, profitability and leverage ratios do not significantly relate to the probability of Financial Statement fraud occurrence. Based on the findings, it was recommended that the firm’s financial managers should note with caution, the negative relationship between financial ratios and the firm’s profitability. Hence, if the purpose of financial management is to improve fraudulent detection, then such efforts must be improved in using financial ratios to detect fraudulent financial reporting.

Corporate Investment and Financing Dynamics

Abstract We consider the behavior of leverage ratios in a trade-off model with investment. Debt underutilization to retain financial flexibility persists even when firms exercise their last investment options, and it is more (less) severe for more back-loaded (front-loaded) investment opportunities. Leverage paths crucially hinge on the structure of the investment process, which leads firms to have significantly different target leverage ratios. Structural estimation of key parameters reveals that simulated model moments can match data moments. In simulated panels, leverage regression results are in line with the evidence, and average leverage ratios are path-dependent and persistent for extended periods of time. (JEL G31, G32)

Analisis Rasio Keuangan pada Perusahaan BUMN yang Terdaftar di Bursa Efek Indonesia

The purpose of this study was to determine the effect of liquidity, leverage and activity on profit growth with company size as a moderating variable in state-owned companies listed on the Indonesia Stock Exchange for the 2018-2021 period. This research method is descriptive quantitative. The sampling technique is purposive sampling. The data analysis method used in this study is multiple linear regression analysis and moderated regression analysis. The results showed, a) the ratio of liquidity to profit growth has a coefficient value of 0.002 and a sig. 0.039 < α = 0.05 with significant (positive) results; b) the ratio of leverage to profit growth has a coefficient value of -0.097 and a sig. 0.832 > α = 0.05 with non-significant (negative) results; c) the ratio of activity to profit growth has a coefficient value of 5.151 and a sig. 0.002 < α = 0.05 with significant results (positive); d) company size moderates the relationship between the liquidity ratio and profit growth cannot be analyzed because the results of data processing show excluded variables in the moderating variable x1*z; e) company size moderates the relationship between the leverage ratio on profit growth has a coefficient value of 0.003 and a sig. 0.483 > α = 0.05 with non-significant (positive) results; f) company size moderates the relationship between activity ratio to profit growth has a coefficient value of -0.153 and a sig. 0.003 < α = 0.05 with significant (negative) results. In conclusion, liquidity and activity contribute to profit growth and company size can moderate the relationship between activity and profit growth. Meanwhile, leverage does not contribute to profit growth and company size does not moderate the relationship between leverage and profit growth.
 Keywords: Activity, Leverage, Liquidity, Profit Growth, Company Size

Analyzing firm-specific factors affecting the financial performance of insurance companies in South Africa

This study aims to investigate the effect that firm-specific factors have on the financial performance of South African insurance companies. This paper looked at the performance of 36 insurers that are publicly traded and have quantifiable markets from 2008 to 2019. The return on assets (ROA) was calculated as a function of the financial performance in this study. While the firm size, leverage ratio, premium growth rate, liquidity ratio, and tangibility of assets were examined as dependent factors using the panel data regression technique, the premium growth rate, liquidity ratio, and tangibility of assets were explored as independent variables. According to the findings of the regression analysis, other firm-specific factors, with the exception of leverage and liquidity ratios, do not have a statistically significant influence on the financial performance of South African insurance companies. A negative and insignificant association was discovered between premium growth rate and ROA at –0.0023 and tangibility of assets and ROA at –0.0113. There was a strong positive and significant relationship between liquidity ratio and ROA at 0.0927, while the size had a positive but insignificant relationship with ROA at 0.0039. Leverage ratio and ROA had a negative but significant relationship at –0.1512. This study suggests that the use of automated systems and insured techs will be advantageous in cutting costs associated with policyholder enrollment, claims agreement, and even easily achieved tailor-made policy initiatives.

An Empirical Study on Determinants of Price Earnings Ratio: Evidence from Listed Food, Beverage and Tobacco Companies in Colombo Stock Exchange

The Price earnings ratio compares a stock’s price to earnings. By showing the relationship between a company’s stock price and earnings per share (EPS), the Price earnings ratio helps investors to value a stock and gauge market expectations. The ratio is affected by several factors that are responsible for the variations of Price earnings ratio. These variations of Price earnings ratio have significant impact on investor’s perception. This paper attempts to identify the factors and the relationships between the factors and Price earnings ratio of food, beverage, and tobacco companies in Colombo Stock Exchange (CSE). Based on simple sampling, data were taken for this purpose from annual reports of 30 food, beverage, and tobacco companies listed on the CSE for the five-year period from 2015 to 2019. The study focuses on secondary data collected through the published annual reports of the sample. Descriptive statistics, correlation analysis and multiple regression analysis are used to accomplish the objective of this paper. Results revealed that dividend payout ratio and leverage ratio are significant determinants of Price earnings ratio where these both variables have positive influence on Price earnings ratio. Furthermore, return on equity and earnings per share are negative insignificant determinants of Price earnings ratio. Dividend payout ratio and leverage ratio have positive correlation with price earnings ratio. It can be statistically concluded that dividend payout ratio and leverage ratio have positive significant relationship with price earnings ratio. Return on equity and earnings per share have negative correlation with price earnings ratio. Significant values are higher than the test alpha values. Therefore, the researcher can reject the alternative hypothesis. It can be statistically concluded that return on equity and earnings per share have negative insignificant relationship with price earnings ratio. This paper is evidence for fundamental analysts and decision makers to evaluate determinants that explain variations in P/E ratio of food, beverage, and tobacco companies in Sri Lanka.

Financial Performance Analysis Before and After the Rise of Digital Companies (Case Study in the Transportation, Banking and Manufacturing Sector Listed on the Indonesia Stock Exchange)

Rapid technological developments in this era have an impact on incumbent companies or in other words, are companies that first exist and operate in the world. Technology has an influence on every area of ​​human life. The increasing number of online technology-based digital companies such as start-up companies on demand, financial technology (fintech) companies, and electronic commerce (e-commerce) companies, of course have an impact on incumbent companies in various sectors. This study was conducted to determine whether or not there are differences in the financial performance of incumbent companies between before and after the rise of digital companies. This research was conducted on companies in the transportation, banking and manufacturing sectors listed on the Indonesia Stock Exchange in 2012-2014 and 2016-2018, using profitability ratios, leverage ratios, liquidity ratios and activity ratios as measured by return on assets (ROA), debt ratio (DR), current ratio (CR) and total assets turnover ratio (TATO). Tests carried out include descriptive statistical analysis, normality test and hypothesis testing. In testing the hypothesis using the paired sample t-test method. The results of this study are that there is no significant difference in financial performance before and after the rise of digital companies assessed from ROA, DR, CR and TATO. In testing the hypothesis using the paired sample t-test method.

The Price Impact of S&P 500 Affiliation

Abstract We examine how abnormal returns and abnormal return determinants change when a company is added to S&P 500. Newly added companies experience a significant increase in abnormal returns around the announcement and addition dates. This increase is accompanied by an improvement in liquidity and a decrease in associated shadow cost. While before their addition, firm-specific abnormal returns can be explained by price impact, they are explained by changes in trading activity during the addition event. Additionally, companies with higher leverage ratios benefit more from index affiliation.

PENGARUH KINERJA KEUANGAN TERHADAP FINANCIAL DISTRESS PADA PERUSAHAAN SUBSEKTOR MAKANAN DAN MINUMAN YANG TERDAFTAR DI BEI PERIODE 2017-2021

The purpose of this study is to determine the financial performance of financial distress in food and beverage subsector companies listed on the Indonesian stock exchange for the 2017-2021 period. The selected p opulation was the food and beverage subsector of 32 companies, the sample was selected using the purpose sampling method as many as 22 companies that were sampled in the study. The variables used in this study are liquidity ratio, profitability ratio, leverage ratio, and activity ratio as independent variables, financial distress as dependent variables. The data analysis technique used in this study is multiple linear regression analysis, with hypothesis testing of t statistical tests and f statistical tests with SPSS (statistical product and service solutions) application tools. The results of this study prove that: (1) The ratio of likuidity has a positive and significant effect on financial distress (2) The ratio of profitability has a positive and significant effect on financial distress (3) The leverage ratio has a negative and significant effect on financial distress (4) Ratio Activity has a positive and significant effect on financial distress.

Financial Flexibility and Firm Behavior: Evidence from Emerging Market

investment opportunities that increase shareholder value. Therefore, the purpose of this study is twofold: to explore the difference in characteristics of financially flexible firms from non–flexible firms. Secondly, to investigate the effects of this flexibility on financial decisions and the value of a firm. The sample is drawn from the KSE100-indexed firms listed at the Pakistan Stock Exchange, showing 80 percent of the market capitalization. The data is collected for eight years from 2015-2022. The ordinary least square regression with year and industry fixed effect is used to estimate the proposed hypotheses. The results of the study revealed that financial flexibility has a significant and positive effect on the profitability, dividend payout, and cash holdings of Pakistani firms. At the same time, it significantly negatively influences the firm's value and investment ability. The results reveal a significant difference between financially flexible firms. FF firms have higher ROA, cash holdings, and dividend payout than non-FF firms and lower leverage ratios than non-FF firms. Financial decision-making has a significant effect on the firm value. The consequences of maintaining financial flexibility or low leverage below the optimal debt level remain a puzzle. The financial markets need to improve, which provides more debt and equity securities for firms to improve their financial mix. The stock market improvement also adds to the emerging market's economic health. This study added to the limited literature on financial flexibility or low-leverage puzzle in the emerging market. The results prove that listed firms maintain their debt capacity to avoid future uncertainty when profitable investments are available.

Efficiency measurement of real estate investment trusts traded in BIST with data envelopment analysis and Malmquist total factor productivity index

Purpose- The aim of the study is to measure the efficiency of real estate investment trusts traded on BIST with data envelopment analysis and the Malmquist total factor productivity index. Efficiency and productivity were measured using the Malmquist total productivity analysis and the Data Envelopment Analysis approach, both of whose application fields have grown recently. Methodology- The Malmquist total factor productivity index is used to analyze changes in total factor productivity of 20 real estate investment trusts operating in 2019–2020–2021, as well as the reasons for these changes, on the axis of variables such as current ratio, leverage ratio, long-term debt-to-asset ratio, short-term debt-to-asset ratio, equity-to-asset ratio, return on assets, net profit margin, and gross profit margin. Findings- The results of the analysis show that 8 companies that are relatively efficient according to their CCR technical efficiency values have been identified; these are ALGYO, AVGYO, HLGYO, MRGYO, MSGYO, PAGYO, RYGYO, and SNGYO. It has been observed that these companies have been effective in an output-oriented way over the past three years. Conclusion- The firms that are below the efficiency limit need to take a few things into account, according to the results. They need to alter a few input variables to reach a higher level of efficiency. It is anticipated that all these findings will support the decision-making of the companies and the investors who are considering investing in these companies. Keywords: Real estate investment trusts, data envelopment analysis, Malmquist total factor productivity index, efficiency measurement. JEL Codes: C67, L25, G29

The Effect of Audit Report Lag, Leverage Ratio and Audit Tenure On Going Concern Audit Opinion: Empirical Study of Go Public Companies Listed on the Indonesia Stock Exchange in 2018-2020

The Effect of Audit Report Lag, Leverage Ratio and Audit Tenure On Going Concern Audit Opinion: Empirical Study of Go Public Companies Listed on the Indonesia Stock Exchange in 2018-2020

Research on the Influence of Shadow Banking Development on the Scale of Social Financing in China

Background: With the continuous improvement and innovation of China’s market-oriented economy, some traditional financial institutions have released new financial products through financial innovation, and the transaction leverage level of most financial institutions and some non-financial institutions is also rising year by year. The latest Quarterly Monitoring Report of China’s Shadow Banks issued by Moody’s, an international rating agency, shows that the assets of China’s broad shadow banks in the first quarter decreased by about 540 billion yuan to 58.7 trillion yuan, continuing the downward trend in recent years. At the same time, China’s economy rebounded rapidly, and the proportion of shadow bank assets in nominal GDP fell to 55.4% from 58.3% at the end of 2020, the lowest level in eight years. The report shows that in the first quarter of 2021, the overall economic leverage ratio measured by the proportion of the adjusted total social financing to the nominal GDP has declined, because the nominal GDP growth in the quarter was 21.2%, far exceeding the growth of 10.1% of the total social financing. Even so, China’s shadow banks are still huge. Also, some non-financial enterprises began to operate shadow banking business, the number of shadow banking enterprises coming into the financial market is growing fast, which is the background and environment of the emergence and development of enterprise shadow banking studied in this paper. In 2020, due to the impact of the epidemic, the Chinese government will actively adjust its macro policies and release liquidity, which will further drive the development of shadow credit business. In the first quarter of 2020, the overall shadow bank assets increased by 100 billion yuan, rebounding compared with 2019. Among them, financial products and asset management products accounted for the main part, with a total increase of 350 billion yuan. Objective: This paper focuses on using different kinds of products operated by shadow banking enterprises to represent the shadow banking scale of enterprises, and explores its impact on the total amount of social financing, based on which a series of policy recommendations are given. Methods: Collect the operation data of shadow banking enterprises in the ten years from 2010 to 2019, use ols regression analysis and intermediary effect test to analyze the development of enterprises’ shadow banking scale and China’s social financing scale. Results: The development of shadow banking will affect the total scale of social financing. There is a non-linear correlation between the development of shadow banking and the total scale of social financing. Conclusion: The improvement of enterprises’ shadow banking scale will promote the expansion of social financing scale as a whole, and will have a negative effect on the productive investment of various enterprises themselves.

Optimal restrictiveness of a financing covenant

This paper identifies the optimal restrictiveness of a financing covenant in a debt contract. We examine the decision of a debt-issuing company that has current operations as well as a future growth opportunity. The optimal financing covenant can substantially reduce the cost of debt financing, and generally allows the issuance of some debt for financing the expansion. Comparative static analysis indicates that the covenant is less likely to be included when growth opportunities, earnings volatility, earnings drift rate, interest rate and tax rate are higher; and when bankruptcy cost is lower. Also, the financing covenant is more likely when the leverage ratio is higher (bankruptcy risk is greater) but becomes less likely for very high leverage ratio (when the firm is in or close to financial distress). These results are generally consistent with existing empirical results in the literature.

THE DETERMINANTS OF PROFITABILITY OF SCHEDULED COMMERCIAL BANKS IN INDIA: A TIME SERIES AND CROSS-SECTIONAL ANALYSIS

The current study examines the determinants of profitability of Indian scheduled commercial banks. The analysis is conducted over a period of 17 years in which the Indian banking sector has faced different challenges such as implementation of Basel II (2008), Basel III (2013) accord and issues related to demonetization (2016), banking sector sustainability and financial crisis in U.S (2008).The analysis is based on balanced panel data over a period ranging from 2005 to 2021 for 33 scheduled commercial banks of India. Profitability of Indian banks is measured by two proxies, namely,return on assets (ROA) and return on equity (ROE),whereas bank size,assets quality,capital adequacy,liquidity, operating efficiency, deposits, leverage, and assets management are used as bank-specific factors. Further, a set of macroeconomic determinants such as gross domestic product,inflation rate, export,import,interest rate, and financial crisis are used as independent variables.Stationary test along with correlation matrix, pooled, fixed, random effect models and Hausman test are used in this study. The results revealed that bank size; assets management ratio, and operational efficiency, are the most important bank-specific determinants have positively and significantly affect the profitability of Indian commercial banks as measured by ROA as well as ROE.However,leverage ratio and asset quality have significant and negative impact on ROA and ROE during the period of study.With regard to the macroeconomic determinants,the results revealed that the GDP,export,and interest rate are found to have a positive significant impact on ROA and ROE.However,inflation rate and crisis have significant and negative impact on ROA and ROE during the period of study.

Do small businesses adjust their capital structure? Evidence from the global financial crisis in Japan

AbstractWe investigate the extent to which small businesses adjust their capital structures to target levels when their leverage increases substantially during a financial crisis. We examine Japan's Emergency Credit Guarantee (ECG) program during the 2008 global financial crisis. The increased leverage from the use of the ECG program during the crisis increased the probability of default. Additionally, small businesses adjusted their leverage ratios to the target range before the crisis. However, such adjustments were weak during and after the crisis, particularly for target firms in the ECG program.

Factors Affecting Financial Distress in Small and Medium Enterprises (SMEs) in Indonesia: An Empirical Study

Aims: The research conducted aims to see the effect of financial ratios in the ability to predict the possibility of a company in experiencing financial distress.
 Study Design: The independent variables in this study are leverage, liquidity and profitability. The control variables consist of firm size and age of the company while the dependent variable is financial distress as measured by the Z-score.
 Place and Duration of Study: The sample used in this research is a company listed on the 2017-2021 PEFINDO index on Bursa Efek Indonesia.
 Methodology: The number of samples used were 65 companies with a total of 325 observations using purposive sampling.
 Results: The results showed that leverage had a positive significant effect on financial distress meanwhile profitability and age had a negative significant effect on financial distress.
 Conclusion: The company is expected to minimize the use of leverage which used to fund total assets. In addition, the company is expected to be able to increase company's net profit to minimize it’s possibility in experiencing financial distress and companies with a mature age to keep maintaining leverage and profitability in order to avoid the risk of financial distress. Investors are expected to choose companies by looking at low leverage ratios, high profitability, and companies with old ages so that the risk of investment can be minimized. The government is expected to be able to provide capital to companies so that the company's leverage can be lower as well as an increase company’s profitability as a result of increasing company productivity in doing business.

Hedge funds trading strategies and leverage

We introduce learning into the hedge fund managers’ risk choice problem with imperfect information. We find that with a constant but unobserved expected return on investment, learning induces managers to take more risks and increases manager compensation. When the return is stochastic, learning increases manager compensation and induces an aggressive leverage choice when funds perform poorly or managers’ belief about fund returns is low. When funds are close to the high-water mark or the return belief is high, the learning effect reverses. This situation generates a flatter leverage ratio, which helps explain the cross-sectional dispersion of hedge fund strategies’ market betas. Finally, comparative statistics for transition intensity show that procyclicality in the hedge fund industry declines.