DETERMINANTS OF FINANCIAL PERFORMANCE IN BRAZILIAN COMPANIES: A MULTI-RATIO MODEL USING MULTIVARIATE STATISTICAL METHOD

Prof. Dr. Hong Yuh Ching () and Prof. Dr. Fábio Gerab ()
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Prof. Dr. Hong Yuh Ching: Head of Business department, Centro Universitário da FEI, SBC, Brazil
Prof. Dr. Fábio Gerab: Head of Mathematic department, Centro Universitário da FEI, SBC, Brazil

Journal of Global Business and Economics, 2012, vol. 5, issue 1, 79-99

Abstract: The objectives of this research are twofold: a) identify the factors and correlated indicators that impact corporate financial performance; b) determine the indicators that most affect profitability of Brazilian cyclical consumer goods industry. Two motivations for this study were the lack of academic research in this industry and its importance in the economy. Sixteen companies with current asset greater than 50% of total asset, for the period 2005-2009, were selected. Principal Component Analysis PCA was used to extract, from 20 variables and ratios, five factors that impact financial performance. The variable with the biggest component loading in each one of the five factors was selected to be its representative in the multiple regression analysis MRA. Finally, MRA is used to assert which indicators affect corporate profitability the most as measured by ROS return on sales, ROA return on assets and ROE return on equity. The results show that five factors impact corporate financial performance with 18 correlated variables and ratios. The firm size factor is the most predominant and accounts for 26,9% of total variance, while the financial debt is the least important, accounting for 9,1%. Percentage of gross margin and the amount of equity are the indicators that impact the profitability, while financial leverage impacts only ROE. The first two indicators account for 50,7% and 73,4% of ROS and ROA variances respectively, while they, together with financial leverage, account for 72,7% of ROE variance. Working capital indicators account for 20,8% of financial performance variance but none of them affects profitability. The findings can provide experience sharing for other industries and also for cyclical consumer goods industry in other countries, which can be of interest to international audience of academics and business managers. The originality of this study was to combine both techniques: the use of PCA to identify the most relevant indicator in each factor followed by a MRA to assert which indicators affect the corporate profitability the most

Keywords: Financial performance; financial indicators; principal component factors; multiple regression analysis (search for similar items in EconPapers)
JEL-codes: M0 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (1)

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