TRADE AND MANUFACTURING COMPANIES RISK ANALYSIS

Edina Kulcsár ()
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Edina Kulcsár: Partium Christian University, Faculty of Economics and Social Science, Department of Economics, Oradea, Romania

Annals of Faculty of Economics, 2019, vol. 1, issue 2, 169-178

Abstract: Risk assumption is a key element of profit generation and hereby of shareholder capital maximizing. Therefore the determination and measurement of risk have become an essential task for companies. The main purpose of this research is to analyse corporate risk of companies acting in two sectors of economy: trade and manufacturing. Financial literature shows many risk quantification methods as variance, standard deviation, etc., but according to present study aims, we use for corporate risk analysis two dynamic risk measures: Degree of Operating Leverage (DOL), Degree of financial Leverage (DFL). The investigation is based on Hungarian companies data for five years (2013-2017). The database used for risk analysis is ensured by data from financial statements of trading companies (1077 companies) and companies operating in the manufacturing sector (638 companies). The calculations were carried out using different packages of R statistics system. In the first part of study, it was calculated the basic statistical characteristics of above mentioned two leverage ratios for trading and manufacturing companies. Then we plot the results with boxplot diagram in order to show the dispersion of investigated data and to ensure a better comparison of results. According to Degree of Operating Leverage (DOL), the results shows, that excepting one period (2014), the manufacturing companies risk level is greater than trade companies. This means that investigated manufacturing enterprises have to reconsider their functioning and to optimize their costs, on aspect of fix costs. In term of Degree of Financial Leverage (DFL), the results obtained show that manufacturing companies’ riskiness is higher than trading firms. This means that have to pay more attention to the level of indebtedness because this may be linked to financial risk. The coefficient of variance show extremely high values which drew attention on great spatial heterogeneity of trade and manufacturing companies in term of Degree of Operating Leverage (DOL) and Degree of Financial Leverage (DFL). We can conclude that solution for a proper risk analysis may be the grouping of companies’ sample by different features.

Keywords: corporate risk; risk measurement; degree of operating leverage; degree of financial leverage; risk analysis; standard deviation; coefficient of variance; quartiles; heterogeneity (search for similar items in EconPapers)
JEL-codes: G3 G30 G32 (search for similar items in EconPapers)
Date: 2019
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