APPENDIX I: Categories of financial ratios according to different … · 2017-08-07 · due (Gitman...

APPENDICES

pertaining to

Voluntary Disclosure of Financial Ratios:

Evidence from Portuguese Listed Companies

Inês de Figueiredo Tavares Batista, No. 2333

6th of January 2017

ii

Table of Contents

APPENDIX I: Categories of financial ratios according to different authors .................................. iii

APPENDIX II: Explanation of methodological issues in the use of financial ratios mentioned by

Lev & Sunder (1979) .............................................................................................................................. v

APPENDIX III: List of companies in the sample, Industry and SuperSector according to the

Industrial Classification Benchmark (ICB) ........................................................................................ vi

APPENDIX IV: Financial ratios found, standardized name and category .................................... vii

APPENDIX V: Pearson’s correlation matrix for company characteristics, p-values and R2 ....... xii

Appendix VI: Average number of ratios according to SuperSector ............................................... xiii

Appendix VII: Descriptive statistics for Size and Ln_Size ............................................................... xiii

Appendix VIII: Descriptive statistics for EFRD ............................................................................... xiii

iii

APPENDIX I: Categories of financial ratios according to different authors

Though different authors present different groupings and use different terminology, some of

these categories refer to the same types of ratios, as discussed below.

Liquidity ratios measure a company’s ability to meet its short-term obligations as they come

due (Gitman & Zutter, 2012; Weston & Copeland, 1992). The most used liquidity ratios are

the current ratio and the quick ratio. Dun & Bradstreet consider these two ratios as solvency

ratios.

Leverage or debt ratios “measure the degree of protection of suppliers of long-term funds”

(Gibson 2011, p. 187); in other words, they reflect the level of indebtedness of a company and

its ability to repay long-term debt.

Profitability ratios measure a company’s ability in using its resources to generate earnings. In

general, they evaluate the return a company was able to generate with respect to sales, assets

and investment. They typically include profit margins (gross, operating and net profit), Return

on Assets (ROA), Return on Equity (ROE), Return on Investment (ROI) and Return on Sales

(ROS).

What Gitman & Zutter (2012) classify as market ratios and Weston & Copeland (1992) as

valuation ratios correspond to some of the ratios Gibson (2011) considers as “relevant for

investors”. Utilizing the same terminology as Watson et. al (2002), these can be called

investment ratios. Market ratios relate a company’s stock price to different accounting items

and give an indication of how stockholders perceive the company’s performance. The most

widely used market ratios are the price to earnings (P/E) ratio and the market/book (M/B)

ratio. In addition, other ratios are relevant for investors when deciding what companies to

invest in. These are, namely: dividend payout, dividend yield and degree of financial

leverage. Earnings per share (EPS), the only mandatorily disclosed ratio, is considered as an

“investment ratio” by Gibson (2011), but as a profitability ratio by Gitman & Zutter (2012).

iv

Cash flow ratios can reflect any of the similar information to the previously mentioned

categories and use information from the cash flow statement to do so (namely, operating cash

flow).

Activity ratios “measure how effectively the firm employs the resources at its command”

(Weston & Copeland 1992, p. 183); that is, they measure how efficient a company is at

managing different accounts, which is way they are sometimes also called efficiency ratios.

This include inventory turnover, average collection period, fixed assets turnover and total

assets turnover. Gibson (2011) considers total assets turnover as a profitability ratio.

v

APPENDIX II: Explanation of methodological issues in the use of financial ratios

mentioned by Lev & Sunder (1979)

The two main uses of financial ratios are as control for size and as control for industry-wide

factors.

For the first case, they mention how: ratios are only “an adequate instrument for size control

when the variable under examination, y, is strictly proportional to the size of the operation, x”

(Lev & Sunder 1979, p. 190) and the importance of choosing an appropriate measure of size

to avoid ambiguity; how using a variable controlled for size may lead to inaccurate results.

As for the second case, the main issue lies on the fact that the appropriate industry standard to

be used for comparison depends “on the underlying theoretical reasons as to why firms within

the same industry are expected to have similar or dissimilar ratios and, second, on the

distributional properties of financial variables and ratios” (Lev & Sunder, 1979, p. 207).

The problems reside in the fact that theory on these subjects is often scarce and hardly

attainable and, also, that these questions are easily overlooked by users of financial

information.

vi

APPENDIX III: List of companies in the sample, Industry and SuperSector according to

the Industrial Classification Benchmark (ICB)

Company Industry SuperSector

F. Ramada Investimentos SGPS Basic Materials Basic Resources

Inapa Investimentos Participações e Gestão Basic Materials Basic Resources

Navigator Company Basic Materials Basic Resources

Semapa SGPS Basic Materials Basic Resources

Corticeira Amorim SGPS Consumer Goods Food & Beverage

Sumol+Compal Consumer Goods Food & Beverage

Vista Alegre Atlantis SGPS Consumer Goods Personal & Household Goods

Cofina SGPS Consumer Services Media

Impresa SGPS Consumer Services Media

Media Capital SGPS Consumer Services Media

NOS SGPS Consumer Services Media

Jerónimo Martins SGPS Consumer Services Retail

SAG Gest SGPS Consumer Services Retail

Sonae SGPS Consumer Services Retail

Estoril Sol SGPS Consumer Services Travel & Leisure

FC Porto Futebol SAD Consumer Services Travel & Leisure

Ibersol SGPS Consumer Services Travel & Leisure

SL Benfica Futebol SAD Consumer Services Travel & Leisure

Sporting CP Futebol SAD Consumer Services Travel & Leisure

SONAE capital SGPS Financials Financial Services

Luz Saúde Health Care Health care

Cimpor SGPS Industrials Construction & Materials

Imob. Grão Pará Industrials Construction & Materials

Mota Engil SGPS Industrials Construction & Materials

SDC Investimentos SGPS Industrials Construction & Materials

Sonae Indústria SGPS Industrials Construction & Materials

Teixeira Duarte Industrials Construction & Materials

Altri SGPS Industrials Industrial Goods & Services

CTT Industrials Industrial Goods & Services

Lisgráfica Industrials Industrial Goods & Services

Martifer SGPS Industrials Industrial Goods & Services

Orey Industrials Industrial Goods & Services

Toyota Caetano Portugal Industrials Industrial Goods & Services

Galp SGPS Oil & Gas Oil & Gas

Compta Technology Technology

Glintt Technology Technology

Novabase SGPS Technology Technology

Reditus SGPS Technology Technology

Pharol SGPS Telecommunications Telecommunications

Sonaecom SGPS Telecommunications Telecommunications

EDP Utilities Utilities

EDP Renewables Utilities Utilities

REN SGPS Utilities Utilities

vii

APPENDIX IV: Financial ratios found, standardized name and category

(to be continued)

Financial ratios disclosed Standardized ratio name Category Notes

Average collection period Average collection period Activity

Average collection period average collection period Activity

Average payment period Average payment period Activity

Average payment period Average payment period Activity

Weighted average payment

period

Average payment period Activity

Adjusted solvency ratio Equity to liabilities ratio Debt Also presented as

"Adjusted equity to

liabilities"

Adjuted equity/average assets Equity to assets ratio Debt

Average book value gearing Debt/equity ratio Debt

Average market value gearing Debt/equity ratio Debt

Debt/EBTIDA Debt/EBITDA Debt

Debt/equity Debt/equity ratio Debt

Debt to equity ratio Debt/equity ratio Debt

Debt-to-equity ratio Debt/equity ratio Debt

EBITDA interest coverage

ratio

Interest coverage ratio Debt

EBITDA/Net interest Interest coverage ratio Debt

EBITDA/net interest payments Interest coverage ratio Debt

Equity ratio Equity to assets ratio Debt

Equity to assets ratio Equity to assets ratio Debt

Equity/net assets Equity to assets ratio Debt Also presented as

"Financial autonomy

ratio"

Financial autonomy Equity to assets ratio Debt

Financial autonomy ratio Equity to assets ratio Debt

Financial autonomy ratio Equity to assets ratio Debt

Gearing Net debt/capital employed

ratio

Debt

Gearing Net debt/equity ratio Debt

Gearing ratio Net debt/capital employed

ratio

Debt

Gearing ratio Net debt/equity ratio Debt

Grau de autonomia financeira Equity to assets ratio Debt

Group equity / fixed assets Equity to assets ratio Debt

Indebtedness Indebtedness Debt

Interest coverage Interest coverage ratio Debt

Interest coverage Interest coverage ratio Debt

Leverage ratio Net debt/capital employed

ratio

Debt

MLT Financial debt/total

financial debt

MLT financial debt/total

financial debt

Debt

Net debt % net capital Net debt/capital employed Debt

viii


employed ratio

Net debt over EBITDA Net debt/EBITDA Debt

Net debt to EBITDA RCA Net debt/EBITDA Debt

Net debt to recurring EBITDA

ratio

Net debt/EBITDA Debt

Net debt/average adjusted

equity

Net debt/equity ratio Debt

Net debt/EBITDA Net debt/EBITDA Debt






Net debt/invested capital Net debt/invested capital Debt

Net financial debt/EBITDA Net debt/EBITDA Debt

Net financial gearing Net debt/capital employed

ratio

Debt

Net remunerated

debt/EBITDA

Net debt/EBITDA Debt

Rácio de alavancagem

financeira

Net debt/capital employed

ratio

Debt

Rácio de alavancagem

financeira

Net debt/capital employed

ratio

Debt

Retail net debt to EBITDA Retail Net debt/EBITDA Debt

Solvency ratio Equity to liabilities ratio Debt Also presented as "Equity

to liabilities"

Current liquidity ratio Current ratio Liquidity Also presented as

"Current ratio"

Average capacity utilization

index (excluding discontinued

production lines)

Average capacity

utilization index

Other

Capex (9M period) as % fixed

assets

CAPEX/fixed assets Other

Capex/sales CAPEX/sales Other

Cash costs/gross margins Cash costs/gross margin Other

Cash flow bruto/vendas Cash flow/sales Other

Cash flow per share Cash flow per share Other

FSEs/vendas Services and

supplies/sales

Other

Gastos com o pessoal/vendas Staff costs/sales Other

Holding loan to value ratio Holding loan to value

ratio

Other

Net debt/gross operating profit Net debt/gross operating

profit

Other

Operating CAPEX as % of

Turnover

Operating CAPEX/sales Other

OPEX/Gross profit Operating expense ratio Other

APPENDIX IV (cont.): Financial ratios found, standardized name and category

ix


Recurrent fixed costs (without

the contribution of the

operations considered as

discontinued and restructuring

costs) as % of consolidated

turnover

Recurrent fixed

costs/sales

Other

Resultados financeiros/vendas Financial income/sales Other

Staff costs/sales Staff costs/sales Other

Tangible fixed asset coverage Tangible fixed asset

coverage ratio

Other

Comprehensive income per

share

Comprehensive income

per share

Profitability

EBIT % of turnover EBIT margin Profitability

EBIT margin EBIT margin Profitability










EBIT margin (%sales) EBIT margin Profitability

EBITDA EBITDA margin Profitability

EBITDA % of turnover EBITDA margin Profitability

EBITDA (%) EBITDA margin Profitability

EBITDA / turnover magin EBITDA margin Profitability

EBITDA as % of turnover EBITDA margin Profitability

EBITDA margin EBITDA margin Profitability















EBITDA margin (% sales) EBITDA margin Profitability


x


EBITDA margin as % of

revenues

EBITDA margin Profitability

EBITDA margin not including

Guaranteed Income Provisions


EBITDA per share EBITDA per share Profitability

EBITDA/sales EBITDA margin Profitability

EBITDA/sales EBITDA margin Profitability

EBITDA/vendas EBITDA margin Profitability

EBT % of turnover EBT margin Profitability

EBTIDA/net revenues EBITDA margin Profitability Also presented as

"EBITDA margin"

Effective margin % of

turnover

Effective margin Profitability

Gross margin Gross margin Profitability

Gross margin Gross margin Profitability

Gross margin % of turnover Gross margin Profitability

Gross margin percentage Gross margin Profitability

Lucro bruto/vendas Gross margin Profitability

Margem bruta Gross margin Profitability

Margem de EBIT EBIT margin Profitability

Margem de EBITDA EBITDA margin Profitability

Margem EBITDA EBITDA margin Profitability

Margem operacional Gross margin Profitability

Net margin Net profit margin Profitability

Net profit % of turnover Net profit margin Profitability

Net profit /average assets ROAA Profitability

Net profit/average adjusted

equity

ROE Profitability

Operating profit as % of total

assets

Operating ROA Profitability

Operating profit as % of

turnover

EBIT margin Profitability

Pre-tax ROIC ROIC Profitability

Recurrent EBITDA % EBITDA margin Profitability

Recurrent EBITDA margin /

% turnover (continued

operations)


Recurring EBIT margin EBIT margin Profitability

Recurring EBITDA margin EBITDA margin Profitability

Re-EBITDA margin EBITDA margin Profitability

Resultado corrente (%) Current margin Profitability

Resultado líquido

consolidado/vendas

Net profit margin Profitability

Resultado operacional/vendas EBIT margin Profitability

Return on assets ROA Profitability


xi


Return on average capital

employed RCA

ROCE Profitability

Return on capital employed

(ROCE)

ROCE Profitability

Return on equity ROE Profitability

Return on equity ROE Profitability

Return on equity (ROE) ROE Profitability

Return on invested capital

(ROIC)

ROIC Profitability

ROCE ROCE Profitability

ROCE ROCE Profitability

ROE ROE Profitability

ROS ROS Profitability

Underlying EBITDA margin Underlying EBITDA

margin

Profitability

Underlying EBITDA margin Underlying EBITDA

margin

Profitability

Margem EBITDA EBITDA margin Profitability

Margem EBIT EBIT margin Profitability

Book value per share Book value per share Valuation

Dividend payment on

consolidated net result

Dividend payout ratio Valuation

Dividend payment on

consolidated net result


Dividend payout on

consolidated net income


Dividend payout ratio Dividend payout ratio Valuation

Dividend yield Dividend yield Valuation



Dividend yield (on individual

result)

Dividend yield Valuation

Dividend/net profit Dividend payout ratio Valuation

Dividend/operating free cash

flow


Payout ratio Dividend payout ratio Valuation

Total shareholder return Total shareholder return Valuation





xii

APPENDIX V: Pearson’s correlation matrix for company characteristics, p-values and R2

Ln_Size SuperSector Profitability Leverage SGPS Corp_Gov Big4 Top_shareh N_pages

Ln_Size 1

p-value

R2 1

SuperSector 0.026816 1

p-value 0.864467

R2 0.000719 1

Profitability 0.479321 0.189321 1

p-value 0.001146 0.224018

R2 0.229748 0.035842 1

Leverage -0.06161 0.216433 -0.03015 1

p-value 0.694707 0.163314 0.847782

R2 0.003796 0.046843 0.000909 1

SGPS 0.169458 -0.0965 -0.21971 -0.22048 1

p-value 0.277325 0.538166 0.156887 0.155396

R2 0.028716 0.009312 0.048271 0.048611 1

Corp_Gov 0.230234 0.097204 -0.11309 -0.15914 0.184961 1

p-value 0.137465 0.535193 0.470271 0.308061 0.235066

R2 0.053008 0.009449 0.012789 0.025325 0.034211 1

Big4 0.302714 -0.14904 0.185398 0.049237 0.181848 0.030749 1

p-value 0.048484 0.340139 0.233942 0.753866 0.243177 0.844814

R2 0.091636 0.022214 0.034372 0.002424 0.033069 0.000945 1

Top_shareh -0.06295 -0.08148 -0.16228 0.07854 -0.10758 -0.03848 0.263412 1

p-value 0.688394 0.603453 0.298495 0.616639 0.492313 0.806471 0.087879

R2 0.003963 0.00664 0.026333 0.006169 0.011573 0.001481 0.069386 1

N_pages 0.643023 0.178088 0.488654 -0.01477 0.013294 0.354259 0.203522 -0.162180919 1

p-value 3.32E-06 0.253224 0.000885 0.925127 0.932574 0.019767 0.190532 0.298780491

R2 0.413478 0.031715 0.238783 0.000218 0.000177 0.1255 0.041421 0.026302651 1

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Appendix VI: Average number of ratios according to SuperSector

SuperSector Average number of ratios

Basic Resources 5.75

Construction & Materials 2.17

Financial Services 6.00

Food & Beverage 7.00

Health care 4.00

Industrial Goods & Services 6.17

Media 2.75

Oil & Gas 4.00

Personal & Household Goods 2.00

Retail 9.00

Technology 2.00

Telecommunications 1.00

Travel & Leisure 1.20

Utilities 3.67

Appendix VII: Descriptive statistics for Size and Ln_Size

Size

Mean 2,871,473.77

Standard Error 1,066,900.54

Median 617,446.00

Standard Deviation 6,996,134.72

Sample Variance 48,945,901,008,918.30

Kurtosis 26.47

Skewness 4.83

Range 42,849,559.24

Minimum 23,457.76

Maximum 42,873,017.00

Appendix VIII: Descriptive statistics for EFRD

Mean 0.244

Standard Error 0.036

Median 0.188

Mode 0.125

Standard Deviation 0.237

Sample Variance 0.056

Kurtosis 2.441

Skewness 1.580

Range 1.000

Minimum 0.000

Maximum 1.000

Ln_Size

Mean 13.48

Standard Error 0.25

Median 13.33

Standard Deviation 1.66

Sample Variance 2.76

Kurtosis -0.04

Skewness 0.27

Range 7.51

Minimum 10.06

Maximum 17.57

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