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

Robert Zenzerović () and Manuel Benazić
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Robert Zenzerović: Faculty of Economics and Tourism “Dr. Mijo Mirković”, Juraj Dobrila University of Pula, 52100 Pula, Croatia
Manuel Benazić: Faculty of Economics and Tourism “Dr. Mijo Mirković”, Juraj Dobrila University of Pula, 52100 Pula, Croatia

JRFM, 2024, vol. 17, issue 8, 1-9

Abstract: 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.

Keywords: economic value added; economic value added to total assets; economic value added to capital employed; financial ratios (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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