Debt Ratio Research Articles

Debt and the Excess Value of Diversified Firms: Evidence from Nigeria

The purpose of this study was to examine the relationship between debt and the value and excess value of diversified firms in Nigeria. This is against the background that there is no consensus on the factors that distinguish value-creating from value-destroying diversified firms. Data were collected from the annual reports of 62 diversified firms listed on the Nigerian Stock Exchange between 2008 and 2018. The multilevel generalized method of moments technique in the REndo package in the R Statistical Package was used to test the hypotheses. There is a significant positive relationship between debt and diversified firms’ value and excess value. The study and its findings are significant in several ways. First, no study has examined the relationship between debt and the value and excess value of diversified firms in the Nigerian context, and the few relevant studies have been in the context of developed countries. Second, it contributes to the literature on the valuation implications of firm diversification by providing some insight into the diversification discount often documented in the literature. These findings suggest that diversified firms’ failure to use the debt capacity that diversification creates is one reason some experience valuation discount. Third, the study employs the multilevel GMM analytical technique to control for endogeneity in the absence of valid instrumental variables. This technique has not been used in the diversification literature. The implication of the findings is that diversified firms should use the debt capacity that diversification provides to invest in positive net present value projects. The use of debt also adds a layer of corporate governance required in an environment of increased complexity and opacity associated with diversification. Increased investment in positive NPV projects and improved corporate governance through increased use of debt will enhance firm performance and value. The increased valuation of diversified firms due to debt increases the ability of diversified firms to play their developmental role in society. Investors would also benefit more from investing in diversified firms with higher debt ratios than those with lower debt ratios, all things being equal.

Firm-specific and country-level determinants of commercial banks capital structures: evidence from Ethiopia

Since the seminal work of MM irrelevance theory, there has been a long history of controversy among academicians both in developed and developing nations regarding the determinants of capital structure. To this end, the main aim of this study was to investigate firm-specific and country-level determinants of the capital structure of Ethiopian commercial banks. The study adopted an explanatory research design with a quantitative research approach. A panel dataset was obtained from 14 commercial banks, which range from 2010 to 2022. A random effect panel regression result revealed that tangibility, non-debt tax shields, growth, and interest rate had a positive and significant effect, while the gross domestic product had a negative and significant effect on leverage which is used as a measure of capital structure. Among the independent variables tested, ROA, liquidity, effective tax rate, risk, and inflation have an insignificant effect on the capital structure of the selected commercial banks. The study will have implications for managers of commercial banks, legislators, regulators, and other interested parties that can use the study's conclusions to help them make well-informed capital decisions and implement the necessary measures to enhance the financial performance of Ethiopian banks with an optimal ratio of debt to equity.

Pengaruh Volume Penjualan Saham, Profitabilitas, Solvabilitas, Earning Volatility dan Tranding Volume terhadap Volatilitas Harga Saham dengan Kebijakan Deviden sebagai Variabel Mediasi

This research aims to determine the effect of share sales volume, profitability, solvency, earnings volatility and trading volume on share price volatility with dividend policy as a mediating variable in food and beverage companies listed on the Indonesia Stock Exchange for the 2017-2021 period. The sample for this research consisted of 55 companies, using a purposive sampling method with the criteria stating dividend payments for 5 consecutive years. The research results show that debt ratio, return on assets, trading volume have an influence on stock price volatility. However, earnings volatility and share sales volume have no effect on share price volatility. Dividend policy is able to mediate share sales volume on stock price volatility, dividend policy is able to mediate profitability on stock price volatility, dividend policy is able to mediate solvency on stock price volatility, dividend policy is able to mediate earnings volatility on stock price volatility and dividend policy is able to mediate volume trending on stock price volatility in food and beverage companies listed on the Indonesia Stock Exchange for the 2017-2021 period.

주요 수입원으로 부동산 의존 여부에 따른 서비스업의 재무비율과 재무성과 간의 영향관계에 관한 연구

[Purpose] This paper analyzes the impact of financial ratios on the financial performance of two different types of service industries, called Group 1 and Group 2. Group 1 consists of maritime transport, air transport, hotel and car rental industries, which depend on real estate as a major source of income, while Group 2 consists of travel agencies, trading companies and information service industries, which do not depend on real estate as a major source of income. [Methodology] This study primarily analyzed 12 representative financial ratios, divided into four categories：profitability ratios, stability ratios, growth ratios, and activity ratios. Secondary data based on the Value Search from 2015 to 2019, was analyzed, and a multiple regression model was employed using SPSS 26.0. [Findings] The analysis showed that for Group 1, focusing on increasing low asset turnover with a relatively low debt ratio is a good way to improve a company’s profitability；for Group 2, focusing on relatively high asset turnover with relatively high debt ratio can improve a company’s profitability. [Implications] The financial performance of service industry was impacted by different types of financial ratios according to real estate dependence as major source of income.

THE LATEST ASPECT OF ASSESSING THE LEVEL OF CURRENCY SECURITY OF UKRAINE

The level of currency exchange security is an important indicator of the effective functioning of the currency exchange market. An imbalance in the domestic currency exchange market intensifies financial instability and makes it impossible to maintain an adequate level of currency security. The purpose of the research is to estimate the level of currency security of Ukraine in the conditions of currency market imbalance to determine the main reasons for its inadequate level and to make proposals for improving the methodology of calculation of the integral index of currency security.The article offers the author's interpretation of the essence of the concept of "currency security". The integral index of currency security during 2008 - 2022 was calculated in accordance with the "Methodical recommendations for calculating the level of economic security of Ukraine" and recommendations were suggested for improving this methodology in order to improve the situation on the currency market.It was proved that certain indicators make an impact on the level of currency security of Ukraine: movement of capital, negative trade balance, sufficient level of international reserves, dollarization of the economy, and high level of public debt. Ways to ensure an adequate level of currency security were proposed. Macroeconomic indicators that can act as indicators of currency security are considered and the correlation between them and the level of currency security was investigated. The expediency of introducing an additional indicator for the integral assessment of currency security is substantiated: the ratio of state and state-guaranteed debt to GDP. It allows to calculate the level of currency security more reliably. It is well-founded that the proposed indicator has a close stochastic connection with the exchange rate, therefore, if it is used with existing indicators of currency security calculation, it allows to detect negative trends of decreasing of the level of currency security.

PENGARUH LEVERAGE, PROFITABILITAS, DAN STRUKTUR MODAL TERHADAP PAJAK PENGHASILAN BADAN DENGAN BIAYA OPERASIONAL SEBAGAI VARIABEL MODERASI STUDI KASUS SEKTOR PERUSAHAAN KEUANGAN

In the tax system, corporate income tax is a significant type of tax. Law number 36 of 2008 concerning income tax states that corporate income tax is imposed on tax subjects for income received or earned in the tax year. It is necessary to understand how certain factors can influence the amount of income tax that must be paid by financial sector companies registered on the IDX in the 2019-2022 period. The factors that are the focus of the research are leverage (debt ratio), company profitability, and capital structure. Apart from that, the research will also examine whether operational costs act as a moderating variable that can influence the relationship between leverage, profitability, and capital structure and corporate income tax. This research aims to analyze and test the influence of Leverage, Profitability and Capital Structure which have a positive and significant influence on corporate income tax

Analysis of Interest Rate Determinants: Evidence from Lending Club

Nowadays, high interest rates hit the whole lending market, a number of people consider online lending institutions to trade. This dynamic generates a viable alternative to traditional bank services, allowing borrowers to choose their optimal lending plan. This paper focuses on online lending services, investigating the factors influencing the interest rate offered by Lending club institutions. Using OLS and machine learning models, the author analyses the influence of different dimensions of factors (debt level, FICO score, lending purpose, and normalized debt-to-income ratio) on the average interest rate. The results emphasize the results emphasize that Personal characteristics count for lending rate evaluation. People who have lower credit scores and bear a high debt ratio would be offered a higher interest rate than those who have a good individual background. Contrary to the conclusions achieved in other studies, when loans are given for longer durations, they tend to have higher interest rates. This is mainly because lenders have to consider factors like the risk of inflation and the potential earnings they might miss out on during that extended period.

Financial Performance Measurement of Companies in the BIST Sustainability 25 Index with LBWA and MEREC-based CRADIS Methods

Abstract Financial performance refers to the assessment of a firm’s capacity to generate profits and manage its financial assets effectively during a specific period of time. This study addresses the evaluation of financial performance of companies in the BIST Sustainability 25 Index using a hybrid MCDM method. For this investigation, nine criteria, namely, acid-test ratio, asset turnover, current ratio, debt ratio, EBITDA, net profit margin, return on equity, stock return and stock turnover are used to determine the financial performance of companies. In this study, the weight of criteria is calculated using both subjective (LBWA) and objective (MEREC) weighting approaches. After the weight of criteria is determined, the financial performance of companies is ranked using the CRADIS method. The results showed that EBITDA and Stock turnover are the most and least important criteria, respectively. According to results obtained from the CRADIS method, Ereğli Iron-Steel, Enka construction and Ford Otosan have the highest financial performance, while Vestel, Arçelik and Çimsa have the lowest financial performance in the period of 2018 and 2022. Additionally, the robustness and validity of the results are tested by various MCDM methods, namely, ARAS, COPRAS, EDAS, MABAC, MAIRCA, MARCOS, TOPSIS, CoCoSo and MAUT.

Bond market access and corporate financing decisions: Evidence from a quasi-natural experiment

This study investigates how bond market access affects corporate financing decisions. Employing a difference-in-differences approach based on a reform in China and a sample of listed firms from 2010 to 2020, we find significant increases in bond issuance and bond financing for firms with high ex-ante equity costs. The effect is stronger for firms not audited by Big 4 auditors, having more negative news coverage, and exhibiting less conservative accounting practices. While increasing bond financing, firms decrease bank loans and leave debt ratios unchanged. Our findings indicate that firms hop among financing sources based on market accessibility and capital costs.

Analisis Kinerja Keuangan Pada PT. Bentoel Internasional Investama Tbk

PT Bentoel Internasional Investama Tbk. is one of the largest cigarette companies in Indonesia. The cigarette manufacturing sector has a significant contribution to state revenue through excise, as regulated in Law number 39 of 2007. Indonesia ranks the third largest number of smokers in the world with 112 million smokers in 2021. Cigarette companies face intense competition, which forces them to continuously improve product quality and business strategies to maintain market share and maximize profits. This study aims to analyze the financial performance of PT Bentoel Internasional Investama Tbk. This research method uses Kuanitatif with secondary data sources, the research population in the 6-year period 2017-2022 in the financial statements, the sample used financial statements consisting of the balance sheet and profit and loss of PT Bentoel Internasional Investama Tbk 2017-2022, with analysis methods using statistical analysis. The results of the study on the analysis of liquidity ratios using a current ratio of 1.94 rounded 2 is declared good and a cash ratio of 0.10 is declared not good, solvency ratio with a debt to asset ratio of 41% is declared good, the ratio of debt to equity obtained a value of 70% is declared not good, and long-term debt to equity is good 17% is declared good. The activity ratio using the calculation of fixed asset turnover of 2.83 is not good and total asset turnover of 1.15 is not good. The profitability ratio using net profit margin obtained 0% is not good, return of incesment 0% is not good, and return of equity -0.03% is not good.

Determinants of Capital Structure: A Case of Nepalese Non-Financial Firms

This study examines the determinants of capital structure in the context of Nepalese non-financial firms. Short term debt ratio and long term debt ratio are selected as the dependent variables. The selected independent variables are assets tangibility, liquidity, non-debt tax shields, firm size, profitability, Tobin’s q and firm’s age. The study is based on secondary data with 105 observations from 7 hydro power firms, 3 hotel industries and 4 manufacturing firms listed in Nepal Stock Exchange (NEPSE). The data were collected from annual reports of the selected non-financial firms. The correlation coefficients and regression models are estimated to test the significance and importance of determinants of capital structure in the context of Nepalese non-financial firms. The study showed that assets tangibility has a positive impact on long-term debt ratio and short-term debt ratio. It indicates that higher the assets tangibility, higher would be the long-term debt ratio and short-term debt ratio. Similarly, liquidity has a positive impact on long-term debt ratio and short-term debt ratio. It indicates that increase in liquidity leads to increase in long-term debt ratio and short-term debt ratio. Likewise, non-debt tax shields has a positive impact on long-term debt ratio and short-term debt ratio. It indicates that increase in non-debt tax shields leads to increase in long-term debt ratio and short-term debt ratio. Further, firm size has a positive impact on long-term debt ratio and short-term debt ratio. It indicates that increase in firm size leads to increase in long-term debt ratio and short-term debt ratio. In addition, profitability has a positive impact on long-term debt ratio and short-term debt ratio. It indicates that increase in profitability leads to increase in long-term debt ratio and short-term debt ratio. Likewise, Tobin’s q has a positive impact on long-term debt ratio and short-term debt ratio. It indicates that higher the Tobin’s q, higher would be the long-term debt ratio and short-term debt ratio. Moreover, firm’s age has a negative impact on long-term debt ratio and short-term debt ratio. It indicates that higher the firm’s age, higher would be the long-term debt ratio and short-term debt ratio.

Predicting determinants of industrial firms’ loan payment default: Logit model versus probit model

Appropriate control and management of credit risk has become the main concern of financial institutions, which are constantly developing models for analyzing, assessing and predicting this risk, particularly in view of the prudential standards required by central banks. The current research paper aims to specify the determinants of payment defaults in Tunisian companies in the industrial sector so as to develop a model with the optimal predictive precision of forecasting payment default when it relates to industrial firms functioning in the Tunisian environment. Within this framework, we compared two generalized linear models which correspond to the logit and probit models based on a sample of Tunisian industrial companies. The results revealed that debt ratio is the most important variable that increases the probability of default payment, while the solvency ratio reduces the probability of default payment. This study highlights the vital contribution of macroeconomic agents, such as GDP growth rate and inflation rate, in terms of the prediction of default payment.

The Influence of the Composition of a Company's Capital on Financial Performance

In the aftermath of a pandemic, companies struggle with survival and expansion issues. Companies are increasingly paying attention to their capital structure, which is vital for competitiveness, profitability, and financial stability. This paper looks at how long-term debt ratio (LTDR) and short-term debt ratio (STDR) affect return on equity (ROE) and return on assets (ROA). This paper wants to untangle the complex interactions among the financial profiles of S&P 500 firms covering the years 2010 to 2023. The findings suggest that while STDR adversely influences both, OLS regression shows LTDR's favorable relationship to ROA and ROE. Including firm size and liquidity (LQDT) improves the model's explaining ability. In the post-crisis age, financial stability and performance improvement depend on strategic capital structure decisions. Considering all factors, this article contributes to the ongoing discussion by examining how enhancing capital structures can boost businesses' resilience and performance in the wake of global events.

A Financial Analysis and Valuation of Monster Beverage Corp.

In the global beverage market, companies such as The Coca-Cola Co.(KO), PepsiCo, Inc.(PEP), Monster Beverage Corp.(MNST), and Keurig Dr Pepper, Inc.(KDP) are highly competitive with their own unique characteristics. The capital market is a platform for investors to engage in investment activities. Investors investing their funds anticipate returns either through dividends or capital gains. The profitability and liquidity ratio of dividend policy have significant effects. Financial performance has had a pivotal role in fulfilling the objective of maximizing the company's overall worth. The escalating worth of the company serves as a testament to the escalating welfare of shareholders, reflected in the profits garnered by investors, apart from dividends, through capital gains accruing from the ownership of shares. This article will analyze the characteristics, financial performance and strategic risks of these companies to provide investors with comprehensive information. MNST is the best performer in terms of short-term debt repayment capacity and liquidity, with strong solvency, low debt ratios and no long-term debt and interest expense. MNST has performed well in terms of profitability, with high profitability ratios and operating margins, showing strong earning potential. In addition, MNST has also performed well in terms of profitability of shareholders' equity. MNST has the highest market ratio, and the market has a certain optimistic attitude towards it. Overall, MNST is an attractive choice due to its high profitability, strong solvency and good market prospects.

Analisis Laporan Keuangan Untuk Mengatur Kinerja Keuangan Dengan Rasio Keuangan (Pada PT Unilever Indonesia Tbk Periode 2018-2021)

This study aims to analyze the this study aims to analyze the financial performance of PT Unilever Indonesia Tbk. by using financial ratio. The research method used is quantitative descriptive, the data source is secondary data. The data collection technique was carried out using a documentation technique in the form of PT Unilever Indonesia’s financial statement from 2018 to 2021, which was measured using financial ratio, consisting of: liquidity ratio, solvency ratio, profitability ratio, and activity ratio. The data analysis method in this study is a descriptive analysis method by collecting, processing, and analyzing existing data to provide an overview of the conditions under study. Based on the result of research and analysis that has been carried out, financial performance at PT Unilever Indonesia Tbk. is measured using (1) Liquidity ratio, consisting of: current ratio, quick ratio, cash ratio, cash turnover ratio, and net working capital stock ratio, it can be concluded as a whole that its financial performance is declared “Not Good”. (2) Solvency ratio, consisting of: the ratio of debt to assets and debt to equity can be concluded as a whole that its financial performance is declared “Not Good”. (3) Profitability ratio, consisting of: return on investment ratios, return on equity ratios, gross profit margins, and net profit margins, it can be concluded as a whole that the financial performance is declared “Good”. (4) Activity ratio, consisting of: total assets turnover ratio, and fixed assets turnover ratio, it can be concluded that the overall financial performance is stated to be “Good”.

The Impact of Selected Financial Ratios on Economic Value Added: Evidence from Croatia

Traditional financial performance measures should be extended to provide additional information to stakeholders. One such extension is the economic value added (EVA). It shows residual profit above the cost of financing, both creditors and equity financing. This paper elaborates on the impact of selected financial ratios on EVA to total assets and EVA to capital employed using the 20-year aggregated data of non-financial business entities operating in Croatia. It answers the research question of which of the selected financial ratios impacts the above-mentioned EVA-based ratios. Applying dynamic panel data modeling using the generalized method of moments technique resulted in the derivation of two models. The human capital efficiency ratio was statistically significant in both models, positively affecting EVA/total assets and EVA/capital employed. In contrast, the debt ratio and net profit margin were significant only in the second model, where EVA/capital employed was a dependent variable. The research results indicate that the debt ratio affects EVA/capital employed negatively while the net profit margin has a positive effect, confirming the existing research. Total liabilities/earnings before interest, taxes, depreciation and amortization, and total asset turnover were not found to be significant in either of the two models.

Geopolitical risk and credit rating: evidence from North Korea’s threats

ABSTRACT We examine how geopolitical risk from North Korea’s threats affects South Korean firms’ credit ratings. North Korea’s threats, measured by the number of missiles launched, are negatively related to firms’ credit ratings. Employing a sample of South Korean public firms over the period 2012–2021, we find that the credit ratings of South Korean companies decrease with the number of missiles launched. Cross-sectional analyses indicate that the negative effect of North Korean risk differs depending on the firm characteristics. Specifically, firms with higher debt ratios are more significantly affected by North Korea’s threats. In addition, firms whose financial statements are audited by Big 4 auditors are associated with higher credit ratings than those by non-Big 4 auditors. Our findings contribute to the literature on geopolitical risk by identifying the effects of geopolitical risk on credit ratings.

Public debt stabilization via a stochastic differential game paradigm

In this paper, we examine a public debt stabilization in a country under inflation targeting by arguing that bond yields are sensitive to inflation risks. Endogenously defining the convenience premium function, we focus on fiscal and monetary strategic interactions within an optimal control setting. The level of the debt-to-gross domestic produced (GDP) ratio and current inflation rate of the country are considered as the state variables in the game. We then focus on the convenience risk premium and rate of inflation as market-based disciplining devices, to articulate the Nash noncooperative equilibria, cooperative equilibria and Stackelberg equilibria via a feedback control strategy. We show that the outcome of the game depends on the parameters of the game, the type of equilibrium one considers and the decision horizon. When the current inflation rate follows an uncontrolled Ornstein–Uhlenbeck dynamic process, we highlight its effects on the growth rate of the debt ratio. Hence, our model provides a novel framework in which monetary and fiscal authorities can simultaneously achieve their individual interests, while achieving an optimal debt stabilization policy in the presence of inflation. We also highlight the need for governments to adopt policy-approaches which maintain the debt-to-GDP ratio under an inflation-dependent ceiling.

Effects of the Pandemic on the Financial Performance of Listed Readymade Garment Firms in Bangladesh

This study examined how the COVID-19 pandemic impacted the financial performance of listed firms in the readymade garment (RMG) industry in Bangladesh. Out of 56 RMG companies listed in the Bangladesh Stock Exchange, 33 firms whose complete financial data from 2016-2021 was publicly available were selected as the sample. Through the use of descriptive, correlation, and regression analysis, the study explored the sector's financial well-being both before and during the pandemic, including the relationship between the pandemic and financial metrics, the extent of its impact, and other factors that influenced financial performance. The findings revealed a significant negative impact on RMG profitability indicators such as Return on Assets (–.032, p < 0.01) and Return on Equity (–.067, p < 0.05). Factors such as firm size, debt ratio, growth rate, and accounts receivable turnover were also identified as significant influencers of financial performance during the pandemic period. These findings underscored the pandemic-related challenges that RMG companies in Bangladesh faced, and emphasize the importance of proactive strategies for risk mitigation. They also highlight practical implications for strategic financial management and resilience-building measures within the sector.

A Financial Analysis and Valuation of First Solar, Inc.

First Solar is an American company specializing in thin-film photovoltaic solar solutions using Cadmium Telluride (CdTe) technology. This technology offers environmental protection and sustainability advantages. The company maintains market competitiveness through continuous technological improvements, enhanced efficiency and durability, and expanded production capacity. First Solar holds significant market share in the United States and India, aided by government incentives like the U.S. Inflation Reduction Act and Indias Production-Linked Incentive Program. The company is expanding globally through acquisitions and long-term agreements, with plans to build new factories in both countries to boost production. Financially, First Solar performs well in liquidity, solvency, and profitability, ranking in the upper-middle tier among industry competitors. Its healthy short-term debt solvency is indicated by strong current and quick ratios, while its low debt ratio and high interest coverage ratio highlight robust long-term debt solvency. The companys gross and net profit margins are stable and expected to grow. First Solars earnings per share (EPS) and revenue growth rates surpass those of its peers, and its price-to-earnings (P/E) and earnings growth (PEG) ratios suggest lower relative future earnings growth, enhancing investment appeal. In summary, First Solar demonstrates strong market competitiveness and growth potential with its advanced technology, sustainable business model, and solid financial performance, positioning it as a leader in the solar energy industry.