engleski

Are performance indicators drivers of financial stability and profitability?

In this paper, the analysis for 402 085 European companies in period from 2011 to 2014 was conducted. The companies that satisfy 22 specific criterions were selected from the Amadeus database. The empirical research is focused on successful companies and their performance. For the purpose of this paper, the successful companies should meet two requirements. Firstly, they are able to generate more than 10% profit on invested capital and secondly, they are able to repay its financial debts in less than 5 years. The first requirement relates to profitability and the second one to financial stability. The authors use financial ratio analysis to determine the differences between successful and unsuccessful companies. The research is performed comparing successful and unsuccessful companies for the same business activity, since some activities are more capital-intensive than others. The results showed that invested capital turnover ratio of successful companies is above certain level, depending on business activity. Same relates to EBIT margin, working capital ratio, total asset turnover and self- financing ratio. The application of this research can be beneficiary to management of the companies as a strategic tool to set the targets for revenues, costs, working capital and assets in order to be successful.

performance indicators, financial stability, profitability, successful companies, financial performance

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