Return On Invested Capital Research Articles

Industry profitability matters: The value of sustainable growth rate and distance from bankruptcy as enablers of venture survival

Industries with a higher return on invested capital (ROIC), or profit for each unit of assets invested, could be particularly appealing to entrepreneurs. Yet, why do some ventures in industries with high ROIC survive while others do not? Drawing on the strategic fit framework, we posit that ventures with a higher sustainable growth rate (i.e., matching internal growth with industry ROIC) or stability (i.e., lower chances of bankruptcy) are more likely to survive in industries with a higher ROIC. We find support for our hypotheses in a sample of 120,816 new ventures established between 2010 and 2016 (15,236 new ventures failed during the period of observation). The findings have implications for the entrepreneurship literature related to the role of industry in explaining venture survival under varying ROIC industry conditions.

Strategic investments in catch capacity and quotas: How costly is a mismatch for a firm?

Despite improved fisheries management, overcapacity is still a major issue in fisheries worldwide. This study investigates the economic effect of a mismatch between catch capacity and quota holdings on the economic performance of fishing boats operating in a system of Individual Fishing Quota (IFQ) system. Based on the data of 71 fishing vessels, which constitute the entire fleet of Norwegian seagoing purse seiners, an ordinal least squares model is applied by including the vessel's catch capacity, quota holding, and return on invested capital (ROIC) along with several control variables. The estimated results suggest that the key factor affecting ROIC is overcapacity. Specifically, when the relative ratio of capacity and quota holding increases by 1%, a vessel's ROIC decreases by 0.692%. This finding indicates that the overcapacity problem in the Norwegian seagoing purse seine fleet still exists even more than a decade after an IFQ regime was introduced. The paper concludes by discussing implications of the findings.

Economic policy uncertainty and dividend sustainability: new insight from emerging equity market of China

We examine the influence of Economic Policy Uncertainty (E.P.U.) on dividend sustainability – dividend termination and dividend initiation decision. Using a sample of 1,375 firms over the time span 2000–2015, our main result reveals that during high E.P.U. past dividend payers are more likely to terminate and past non-payers are less likely to initiate dividends. However, firms that rely more on internal finance (I.F.), generate high return on invested capital (R.O.I.C.) and state-owned enterprises (S.O.E.s) are less exposed to E.P.U. Therefore, negative (positive) effect of E.P.U. on firms’ dividend initiation (termination) decision is mitigated by considering firms’ heterogeneous characteristics. Results also show that firms having high asset growth, maturity, profitability, cash holdings and high firm value are more likely to initiate and less likely to terminate dividend during period of high E.P.U. In addition, effects of E.P.U. on dividend sustainability is higher for firms functioning in high marketised areas relative to low marketised groups. These findings are robust under different robustness check. Finding confirms that transparent and stable implementation of economic policies can improve sustainability of firm’s dividend policy.

Early mover advantage in Roundtable on Sustainable Palm Oil certification: A panel evidence of plantation companies

The adoption of sustainable palm oil standards remains voluntary. It is unclear whether early adopters achieve better financial performance than those who lag in adopting. This study examines how the profitability, in terms of the return on invested capital (ROIC) of plantation companies is impacted by the entry order of the adoption of the Roundtable on Sustainable Palm Oil (RSPO) sustainability standard. Based on the 2000–2016 panel data of the 39 plantation companies listed on the Kuala Lumpur Stock Exchange, this study has demonstrated profitability as being influenced by the timing of entry (adoption), related resource allocation, business efficiency, and the price of crude palm oil. Since early adopters (plantation companies) realised a positive relationship with ROIC, the presence of an early mover advantage can be hypothesised. This positional advantage is likely to yield both operating and capital efficiencies, such as those predicated in the good management practices of the RSPO standard. This finding is useful as a motivational strategy to augment the acceptance of international palm oil standards among plantation companies, which are often a nucleus to smallholders. The implications for firms adopting other sustainability standards are also discussed.

Efecto de la convergencia a normas internacionales de información financiera en empresas cotizantes de la bolsa de valores de Colombia

The purpose of this document is to analyze the effect of adopting the International Financial Reporting Standards (IFRS), which is a compulsorily requirement to be complied with as of 2015, for companies listed on the Colombian Stock Exchange (BVC by its acronym in Spanish). For the purposes of this study, two samples were used. The first one, with 52 Colombian companies whose financial indicators such as Return on Equity (ROE), Operating Profit Margin (OPM) and Return on Invested Capital (ROIC) were obtained from the accounting information, and where the mean difference was applied, (These companies corresponded to the year 2014 before and after the IFRS.) The second sample had 32 companies. Their level of leverage, ordinary income, operating income, and profit and loss for the year were analyzed to determine the effects of these variables on their market capitalization, using the difference in differences method, taking 2014 as the control year without IFRS and 2015 as the year of treatment with IFRS. The findings show, that in the 52 companies studied, adopting the standards did not signal changes in financial indicators before and after IFRS, as does the stock market value in the sample of 32 companies.

Liquidity and Profitability of Oil and Gas Industry in Malaysia

This paper aims to reveal the impact of liquidity towards profitability of oil and gas industry in Malaysia. The analysis is based on a sample of 25 oil and gas companies that are listed in Bursa Malaysia for the period of 2012 to 2018. Regression analysis was used to test the impact and the trend of financial position after and before decreasing oil price. The result shows that there is a significant impact of only quick ratio on Return on Assets (ROA), Return on Equity (ROE) and Return on Invested Capital (ROIC). While for the cash conversion cycle, the result shows that there is a negatively and significant on ROA, ROE and ROIC. However, for the current ratio, it shows the result as insignificantly with the three dependent variables; ROA, ROE and ROIC. The main results of the paper demonstrate that each ratio (variable) has a significant impact on the financial positions of oil and gas industry with differing amounts and that along with the liquidity ratios in the first place. In addition, this paper shows the results that after the crisis of dropped in oil price, it’s affected to the oil and gas industry in Malaysia.

Impacto da Gestão do Capital de Giro na Rentabilidade das Empresas do Setor de Construção Civil

O objetivo deste artigo foi verificar o impacto da gestão do capital de giro na rentabilidade das empresas de capital aberto do setor de construção civil de 2007 a 2016. Para isso, foram observados alguns indicadores das empresas do setor ao longo desses anos e estimou-se um modelo econométrico a partir de uma análise com dados em painel. Como determinantes da rentabilidade do capital investido (ROI), variável dependente neste estudo, foram definidos indicadores de prazos médios: prazo médio de recebimento das vendas (PMR); prazo médio de renovação dos estoques (PME); prazo médio de pagamento ao fornecedor (PMP). Estimando a regressão com o modelo de efeitos aleatórios, apurou-se que as variáveis explicativas apresentam uma relação inversa com a rentabilidade dessas empresas a um nível de 1% de significância, com exceção do PMP. Implicando que um menor prazo para renovação dos estoques e das vendas proporciona uma maior rentabilidade para empresas do setor da construção civil. Evidencia-se também que a gestão do capital de giro da empresa impacta na rentabilidade das empresas do setor de construção civil.

THE MODERATING ROLE OF MARKET STRUCTURE ON THE RELATIONSHIP BETWEEN FIRM OPERATIONAL PERFORMANCE AND DEGREE OF OPERATING LEVERAGE

This article investigates the moderation role of market structure on the relationship between operational performance and firms’ costs composition. The Herfindahl-Hirschman Index (HHI) were adopted as proxy for market structure; for operational performance, Return on Invested Capital (ROIC); and for firms’ cost choices, the Degree of Operating Leverage (DOL). The database covers non-financial firms at Brazilian market from 1996 to 2016, third quarter. The output points toward to market structure moderation of the relationship between ROIC and DOL with an increase of the effect when markets move to a monopolistic structure. Overall results suggest the existence of a relation between firms’ operational performance and cost behavior, indicated by a negative relationship between ROIC and DOL. Furthermore, we notice a moderating role of Size on market structure (HHI) moderation role on the relationship between ROIC and DOL, in the extent that market structure moves towards a higher concentration level configuration, the moderating effect of HHI becomes more latent.

Measuring impact of working capital efficiency on financial performance of a firm

PurposeThe purpose of this study is to introduce working capital efficiency multiplier (WCEM) as a direct profitability measure of working capital management. The existing accounting measures in the literature establish an indirect approach to study the relationship between working capital efficiency and profitability of the firms.Design/methodology/approachUsing the help of a set of companies from CMIE Prowess database, the study introduces WCEM as a direct profitability measure of working capital efficiency.FindingsIn this study, a new direct measure of working capital efficiency is introduced which is multiplicative in nature. WCEM is a product of three components, namely, WACC, ratio of the sum of trade receivables and inventories to trade payables and ratio of net working capital (NWC) to net sales.Practical implicationsThe importance of direct measure like WCEM could be enormous in performance evaluation of a firm. It can be used as an indicator for choosing a suitable investment opportunity by an investor. This is due to the fact that the firm that is highly efficient in managing working capital is less exposed to liquidity risk. At the same time, the firm is less dependent on external financing. Therefore, such firms eventually create more value for their shareholders. Another indication that WCEM provides is to gauge the bargaining power of the firm and its competitive position in the market. Lower WCEM indicates higher bargaining power of a firm across the value chain, and its superior position relative to its competitors.Originality/valueMost of the studies on WCM are of the empirical type and there is a complete dearth on theoretical framework. Researchers hereafter can consider WCEM as one of the financial performance variables in place of the existing measures such as return on asset (ROA), return on invested capital (ROIC), return on equity (ROE), gross operating income (GOI) and net operating income (NOI) and thereby can contribute new empirical insights through their research outcomes.

New Vistas in Cost-Benefit Analysis and Capital Budgeting to Perfect the IRR and NPV Estimates and to Resolve the Common Criticisms of Reinvestment and Multiple IRR

This paper introduces a new method, different from the discounted cash flow (DCF) method, for the first time, to estimate NPV and IRR. This method makes use of the capital amortization schedule (CAS). Accordingly, the present value (PV) of the final closing balance (CB) in a CAS, at a specific discount rate, is the NPV at that rate and the interest rate that makes the final CB zero is the IRR. The estimated NPV and IRR by CAS and DCF methods are perfectly matching in all cases of small or large-scale investments and under the financial and economic analysis of investments. The advantages of the transparent CAS/MCAS methods include: a. identification of reinvestment, if any, of intermediate income; b. elimination of reinvestment, if there is any; c. resolving the problems of multiple IRR and leading to a unique and real IRR; and d. estimation of IRR on total capital. A modified CAS (MCAS) method is introduced that eliminates the reinvestment income to get a unique IRR that resolves the problem of multiple IRR. When there is multiple IRR, the application of NPV rule without eliminating the reinvestment will be misleading. This analysis also helps to identify the appropriate criterion between IRR and NPV, as NPV indicates the unutilized NCF whereas IRR indicates the return on invested capital (ROIC) by fully utilizing the NCF. The investors are comfortable to compare the IRR with the cost of capital in percentage term. As the modified IRR (MIRR) assumes reinvestment, MIRR might become redundant if there is no reinvestment (with NCF and some NNCF) and this is an incidental inference.

MODERN STATE OF THE INSTITUTIONAL ENVIRONMENT OF THE REGION AS A FACTOR INFLUENCING THE OUTCOME FOREIGN INVESTMENTS

The article proves the impact of the institutional environment, investigated through the index of entrepreneurial confidence, the number of bankruptcies of enterprises, on the dynamics of economic variables, in particular, on the return on invested capital (ROIC), which is an indicator of business risk. It is determined that for foreign investors, this indicator of business risk is one of the key in the decision-making process to invest in the real sector of the economy. The authors argue that, under the current conditions of the Russian economy, debt restructuring and lending to enterprises belonging to a group of related persons in order to improve the value of ROIC is dangerous because of the further increase in overdue debts of enterprises.

MIRR Is a Spurious Criterion and Should Not Be Used in Cost-Benefit Analysis (CBA) and Investment Analysis

This paper evaluates whether MIRR is an appropriate criterion for investment decision and the true annual rate of return on capital. Unlike other published papers, the present analysis introduces three important improvements viz. the investment returns are consistent with NCF (NCF-consistent); the two components of returns on capital investment, i.e. return of capital invested (ROC) and return on invested capital (ROIC), are clearly defined and accounted for; and finally, capital amortization schedule (CAS) is used to verify whether the returns are achievable from the NCF generated and therefore NCF-consistent. The appropriateness of MIRR is evaluated using numerical analysis and the main findings are: a. The estimation of MIRR, manually or in excel, is based on the modified net cash flow (MNCF). The MNCF, derived by mathematically adjusting the actual net cash flow (NCF), distorts the intrinsic value of the cash inflow and its timing. With MNCF, the MIRR is lower than the IRR because MIRR failed to fully utilize the NCF generated as shown by the CAS. MNCF is neither NCF-consistent nor accounting concept-consistent (cash vs accrual concept). b. The problem of reinvestment of intermediate income is a fallacy and therefore the MNCF is a meaningless exercise. For the same NCF, the net benefit stream, MIRR is increasing without any limit with increasing investment rates (IR). The NCF is not adequate to support such an increase in MIRR, as revealed by the CAS. Similarly, when the actual IRR is lower than the IR used, the estimated MIRR is higher than the IRR. Again, the NCF is not sufficient to achieve that higher MIRR than the IRR as confirmed by the CAS. This is one of the serious problems with MIRR that is based on the MNCF, a mere data mining exercise. MIRR is not an accurate estimate but a spurious one. c. Again, the problem of multiple IRR is a data problem associated with non-normal NCF. MIRR does not solve this problem either. With non-normal NCF, the cumulative sum of undiscounted NCF is zero or negative or negligible. In those cases, the NCF data leads to multiple IRR. The non-normal MNCF leads to spurious MIRR estimate (also GIRR and AIRR) that is not supported by the actual NCF as revealed by the CAS. Any rate of return must be NCF-consistent. d. With normal NCF also, the MIRR is spurious because of the false reinvestment assumption and the use of MNCF data. The estimated MIRR, based on assumed reinvestment rate, leads to serious problems as explained above. MIRR (when MIRR < IRR) estimate does not fully utilize the benefit stream and leave a closing balance, as revealed by the CAS. Contrarily, IRR fully utilizes the NCF and therefore IRR is higher than the MIRR (paid-off the ROC and ROIC = IRR). When MIRR is higher than the IRR, the NCF does not support that level of MIRR. e. The results of CAS reveal that MIRR is neither the true return nor the annual rate of return. IRR is also not the annual rate of return but it is the true rate of return on the capital remains invested. Both the MNCF and MIRR are not NCF-consistent but may be mathematically-consistent. When there is no intermediate income, the question of reinvestment does not arise. With that type of NCF, the MNCF and the MIRR are NCF-consistent. f. Generalized IRR (GIRR) and Average IRR (AIRR) criteria are also reviewed. They are not NCF-consistent but mathematically generated returns and are based on wrong assumptions (reinvestment). Based on these results, it is evident that the MIRR is a spurious criterion. Investment analysts and decisions makers may wish to move away from using or reporting MIRR as a criterion so also the authors of all published works and finance and economic texts.

IRR Performs Better than NPV: A Critical Analysis of Cases of Multiple IRR and Mutually Exclusive and Independent Investment Projects

This paper presents evidence to identify the appropriate investment criterion (IRR vs NPV) with emphasis on the controversial reinvestment assumption, multiple, negative, zero and no IRR, mutually exclusive investment and independent projects. The analysis is based on the estimated return of capital (ROC), return on invested capital (ROIC), capital amortization schedule (CAS) and the modified CAS (MCAS). The salient findings are: a. There is no reinvestment of intermediate income in normal net cash flow (NCF) investments. Incidences of reinvestment is evident in some of the non-normal NCF (NNCF) investments where the opening balance (OB) in the CAS is positive. The generalized assertion of reinvestment at IRR or at hurdle rate with IRR and NPV, respectively, is not valid except in the case of some NNCF. b. The problem of multiple IRR is caused by reinvestment of intermediate income in some non-normal NCF (NNCF) investments. MCAS method eliminates the reinvestment income from the NNCF data and resolves the problem of multiple IRR and leads to unique IRR. c. There is no IRR when there is no investment in zero year or investment year or there is no negative cash flow and no sign change. Negative IRR is common when the sum of NNCF is negative that and reveals capital loss (ROC not fully recovered). When the sum of NNCF is zero, the IRR will be zero. Zero IRR indicates that the NNCF is sufficient to recover the capital cost (ROC) and ROIC not recovered. d. In the case of mutually exclusive projects, selecting projects based on NPV at hurdle rate is misleading. A project selected based on higher NPV at hurdle rate ends-up with negative NPV when discounted by the higher IRR achieved by the counterpart project (with lower NPV). In the case of counterpart project, the NPV is not negative but zero at that higher IRR as the discount rate. This weakness of NPV is not exposed as NPV is a static point estimate (at hurdle rate). The NPV is not an appropriate criterion. e. Among a range of discount rates tried, IRR is the only rate that indicates the full utilization of the NCF (makes the NPV zero) and the maximum feasible ROIC (=IRR). IRR therefore performs better than the NPV to select or rank independent or mutually exclusive projects. NPV is the unutilized NCF and a static point estimate. NPV therefore provides incomplete information at hurdle rate. It fails to indicate the full ROIC that the Net cash flow (NCF) could support. NPV at hurdle rate can at best indicate whether the NCF is fully utilized (NPV = 0) or not fully utilized (positive NPV) or not adequate to cover the cost of capital (negative NPV), respectively. IRR, in contrast, explicitly indicates that the NCF is fully utilized (NPV and the closing balance (CB) in CAS are ‘0’) and the ROIC plus ROC are fully recovered. f. The modified IRR (MIRR) is not a solution to the problem of multiple IRR. MIRR assumes and includes reinvestment income without any evidence of reinvestment and therefore MIRR is a spurious estimate. The problem of reinvestment and the resultant multiple IRR is resolved by eliminating the reinvestment income under MCAS method and therefore IRR is unique. These results consistently support the conclusion that IRR is the best criterion to accept or reject or rank mutually exclusive projects as well as independent projects. NPV will still be useful in other areas to estimate the present value. Authors of finance and economic textbooks and other publications may wish to review and consider appropriately update the sections on CBA or capital investment or capital budgeting.

A New Method to Estimate NPV from the Capital Amortization Schedule and an Insight into Why NPV Is Not the Appropriate Criterion for Capital Investment Decision

This paper introduces a new method, different from the discounted cash flow (DCF) method, for the first time, to estimate NPV and IRR. This method makes use of the capital amortization schedule (CAS). The functional relationship between the closing balance in CAS and the NPV is derived and illustrated. Accordingly, the present value of the closing balance in a CAS is the NPV. NPV is estimated using the new method for some selected normal and non-normal net cash flow (NCF) investment projects and presented here. The estimated NPV perfectly matches with the NPV estimated by the DCF method. This method is more transparent and provides a better insight into the suitability of the NPV criterion. NPV represents the unutilised cash inflow and when it is fully utilised, the NPV will become zero and return on invested capital will be the highest, equivalent to IRR. Also, when the cost of capital is in percentage term, the return on invested capital (ROIC) must be in percentage term like the IRR and not in two parts viz. percentage term (hurdle rate) and the balance in absolute term (NPV). The method presented exposes the weakness of the NPV and raises question about its validity as a criterion in capital investment. The CAS based method also makes it implicitly clear that there is no reinvestment of the intermediate income. As the modified IRR (MIRR) is based on the assumption of reinvestment, MIRR might become redundant if there is no reinvestment. Text books and other published works related to Corporate Finance, Investment Analysis, Capital Budgeting and cost-benefit analysis must review these findings and consider revising the relevant chapters or sections accordingly.

Risk analysis and probability of return on invested capital in an intensive beef cattle production system in Minas Gerais, Brazil

The study evaluated the average return on invested capital (ROIC) in function of the variations in the historical prices of beef cattle and the odds of return on that capital gain within the system of beef cattle fattening on a farm in the state of Minas Gerais, Brazil, from 2004 to 2007. To calculate the risk of ROIC, monthly data of beef cattle prices (BM&F) were used from July 1997 to December 2013, revised by the General Price Index of [...]

Factors Creating Economic Value Added of Mining Company

Abstract The company’s strategy that focuses on the growth of the company represented by the economic value added (EVA) requires the identification of factors affecting the size of the EVA. For this purpose, in the paper the formula for EVA was transformed in such a way as to reveal the determinants affecting its value. Three levels of disaggregation of EVA were assumed. At the first level EVA depends on the amount of invested capital (IC) and economic spread (EC). At the second level economic spread is expressed using the weighted average cost of capital (WACC) and the return on invested capital (ROIC). The third level takes into account the capital structure (wi), the cost of capital (ki), the profit margin (NOPAT/S) and invested capital turnover ratio (S/IC). Such disaggregation can be continued on the next levels of detail. Using the method of successive substitutions an analysis of the cause and effect of the mining company, was conducted. In this way, we can indicate which factors and to what extent affected negatively and positively the change of EVA in the analysed year compared to the previous year. Such analysis allows decision makers to determine a strategy directed to the increase of the mining company’s value.

An Evaluation of Chinese Firms' Profitability: 2005–2013

SYNOPSIS We empirically examine the profitability of leading Chinese firms, benchmarked against comparable U.S. firms, for the period 2005–2013. Return on invested capital (ROIC), which excludes leverage effects on performance, provides the primary metric. Averaged over firms and years, the two sets of firms have similar profitability, about 11 percent annually. Decomposing ROIC into free cash flow yield and invested capital growth, we show that the same ROIC has very different compositions: while the Chinese firms have high growth and negative free cash flows, the U.S. firms have low growth and positive free cash flows. Due to balance sheet conservatism, we infer that Chinese (U.S.) firms' free cash flow yields and the resulting ROICs have been biased downward (upward). After correcting for the bias, we show that Chinese firms have much higher profitability than their U.S. counterparts: 15.1 percent versus 8.1 percent. This result is driven by the abundance of growth opportunities in China in our sample period. When we control for the growth rates, we find U.S. firms have been more “efficient” in generating more free cash flows than Chinese firms.

Practices of performance measurement in companies in the Republic of Serbia

large number of acronyms which indicate different performance metrics, such as EBIT (Earnings Before Interest And Taxes), EBITDA (Earnings Before Interest, Taxes, Depreciation, And Amortization), ROIC (Return On Invested Capital), NPV (Net Present Value), EVA (Economic Value Added), IRR (Internal Rate Of Return), ROE (Return On Equity), ROA (Return On Assets) etc. are in use nowadays. In practice, managers cannot and do not want to apply all of these metrics and managers' choice does not necessarily rely on what theory emphasizes as their advantages and disadvantages. We surveyed 64 CFOs in order to explore the corporate practice in the Republic of Serbia. The DCF-based capital budgeting metrics are dominant compared to the traditional metrics, and the one that is used the most is the profitability index, only to be followed by the IRR and the NPV. The Payback Period is yet frequently used. The earnings based corporate performance metrics are still the most important. However, the presence of EVA and the balanced scorecard is not negligible. Large companies use them significantly more than small companies. The orientation towards EVA and the balanced scorecard increases with the internationalization of a firm as well. Finally, companies using sophisticated capital budgeting metrics are prone to using sophisticated corporate performance metrics.

A Comparison of Chinese and US Firms’ Profitability

We empirically examine the profitability of leading Chinese firms, benchmarked against comparable US firms, for the period 2005-13. Return on invested capital (ROIC), which excludes leverage effects on performance, provides the primary metric. Averaged over firms and years, the two sets of firms have similar profitability, about 11% annually. Decomposing ROIC into free cash flow yield and invested capital growth, we show that the same ROIC has very different compositions: while the Chinese firms had high growth and negative free cash flows, the US firms had low growth and positive free cash flows. Due to balance sheet conservatism, we infer that Chinese (US) firms’ free cash flow yields and the resulting ROICs have been biased downwards (upwards). After correcting for the bias, we show that Chinese firms have much higher profitability than their US counterparts: 15.1% versus 8.1%. This result is driven by the abundance of growth opportunities in China in our sample period. When we control for the growth rates, we find US firms have been more “efficient” in generating more free cash flows than Chinese firms.

Does transition to IFRS substantially affect key financial ratios in shareholder-oriented common law regimes? Evidence from the UK

This paper provides evidence of how a transition to IFRS affects key financial ratios and the pertinent financial statement items. Building on Lantto and Sahlström's (2009) evidence from creditor-oriented code law regimes, we examine the impact of IFRS transition on listed companies in the shareholder-oriented common law regime of the UK. The study contributes two insights: First – despite their similarities – conversion from the UK General Accepted Accounting Principles (GAAP) to IFRS leads to substantial differences in key financial ratios. These even surpass differences reported by companies in creditor-oriented code law regimes. We find that medians of profitability ratios increased substantially: Operating Income Margin (OPM) increased by 10.8%, Return on Equity (ROE) by 27.0%, and Return on Invested Capital (ROIC) by 14.4%. The Current Ratio (CR) and Price-to-Earnings (P/E) Ratio also exhibit significant but less drastic changes of 4.2% and −2.9%, respectively. Second, differences in shareholder-oriented common law regimes have the same causes as in creditor-oriented code law regimes, i.e., an increase in Operating Income, Net Income, Current Liabilities and Invested Capital, as well as a decrease in Shareholder Equity.