- 44 -
APPENDIX A: The Ratios
ACCRUAL RATIOS
Liquidity
- quick ratio
= current assets less inventories / current liabilities
- defensive interval measure
= current assets less inventories / daily expenditures to
operations
- net working capital to total asset
Capital Adequacy
- total liabilities / sales
- long-term debt to equity
- times interest earned
= earnings before interest and taxes plus depreciation /
interest
Profitability
- return (after interest and taxes) on equity
= net income / common equity
- return on total assets
- operating margin / sales
Efficiency (turnover ratios)
- inventory turnover period
= average inventory / cost of goods sold
- accounts receivable turnover period
= receivables / sales
Operating Leverage
- labor intensiveness
= personnel expenditures / adjusted real-term fixed assets
- variable costs / fixed costs
Riskiness
Volume
- growth rate
= long-term growth rate of deflated sales
- size
= firm's total assets in proportion to the largest firm
(annual figures)
- 45 -
CASH FLOW RATIOS
- cash net income (cash margin II) divided by cash from sales
- cash operating income (cash margin Ib) divided by total assets
- cash outflow to capital investments divided by cash from sales
- cash outflow to materials & supplies and wages & salaries
divided by cash from sales
- cash net income (cash margin II) divided by interest bearing
debt (average)
- cash outflow to interest payments divided by cash operating
income (cash margin Ib)
MARKET-BASED RATIOS
Firm Ratios
- dividend payout ratio
= dividends per share / earnings per share
Combined Ratios
- dividend yield
- E/P (inverse of price per earnings)
- market to book ratio
= stock price per share / book value per share
Pure Market Ratios
- return on the security (capital gains and dividend yield)
- security's beta
- security's total risk
- 46 -
APPENDIX B: Varimax-rotated Factor Pattern for the Averages of the
Ratios 1974-1984
FACT1 FACT2 FACT3 FACT4 FACT5
X3 0.903 . . . . net work. cap. to tot. ass.
X12 0.777 . . . . labor intensiveness
X6 0.717 . . . . times interest earned
X1 0.717 0.418 . . 0.338 quick ratio
X4 -0.684 . -0.372 0.329 . total liabilities/sales
X17 . 0.912 . . . cash margin Ib / total ass.
X16 . 0.905 . . . cash net income / cash sales
X20 . 0.788 0.309 . . cash netinc. / int bear debt
X21 0.505 0.714 . . . cash to inter / cash marg Ib
X10 . 0.659 . -0.511 . inventory turnover period
X19 0.353 -0.461 0.302 0.357 . cash to mat & w / cash sales
X24 0.362 . 0.861 . . E/P-ratio
X7 . 0.302 0.646 . . return on equity
X26 . . 0.620 -0.519 . return on the security
X5 -0.436 . -0.491 . . long-term debt to equity
X27 . . . 0.873 . security's beta
X15 . . . 0.834 . size
X2 . . . . 0.844 defensive interval measure
X11 . . . . -0.835 acc. rec. turnover period
X14 . . . . .
X9 -0.369 . . . .
X22 . . . . .
X8 0.397 0.350 0.429 . .
X18 . . . . .
X28 . . . . .
X23 . . . . .
X13 . . . . -0.323
X25 . . . 0.423 0.390
NOTE: VALUES LESS THAN 0.3 HAVE BEEN PRINTED AS '.'
- 47 -
FACT6 FACT7 FACT8 FACT9 FACT10
X3 . . . . .
X12 . . . . .
X6 0.316 0.360 . . .
X1 . . . . .
X4 0.332 . . . .
X17 . . . . .
X16 . . . . .
X20 . . . . .
X21 . . . . .
X10 . . . . .
X19 . . . . 0.327
X24 . . . . .
X7 0.307 . . . .
X26 . . . . .
X5 . . . 0.457 .
X27 . . . . .
X15 . . . . .
X2 0.312 . . . .
X11 . . . . .
X14 0.873 . . . . growth rate
X9 0.729 . . . . operating margin
X22 . 0.928 . . . dividend payout ratio
X8 . 0.581 . . . return on total assets
X18 . . 0.791 . . cash to cap inv / cash sales
X28 . . -0.743 . . security's total risk
X23 . . . 0.864 . dividend yield
X13 . . . . 0.824 variable costs/fixed costs
X25 . . . . 0.500 market to book ratio
NOTE: VALUES LESS THAN 0.3 HAVE BEEN PRINTED AS '.'
- 48 -
VARIANCE EXPLAINED BY EACH FACTOR
FACTOR1 FACTOR2 FACTOR3 FACTOR4 FACTOR5
4.403194 4.238279 2.715487 2.622527 2.241442
FACTOR6 FACTOR7 FACTOR8 FACTOR9 FACTOR10
2.109226 1.929188 1.510821 1.400599 1.336602
Cumulative Proportion of total variance
FACTOR1 FACTOR2 FACTOR3 FACTOR4 FACTOR5
0.2451 0.4264 0.5268 0.6150 0.6760
FACTOR6 FACTOR7 FACTOR8 FACTOR9 FACTOR10
0.7317 0.7770 0.8144 0.8463 0.8753
FINAL COMMUNALITY ESTIMATES: TOTAL = 24.507366
X1 X2 X3 X4 X5 X6 X7
0.908735 0.892475 0.936411 0.909261 0.820585 0.893423 0.937337
X8 X9 X10 X11 X12 X13 X14
0.903409 0.910361 0.900782 0.813549 0.860574 0.829672 0.871482
X15 X16 X17 X18 X19 X20 X21
0.863071 0.937182 0.941458 0.743830 0.859216 0.893015 0.956612
X22 X23 X24 X25 X26 X27 X28
0.905599 0.877821 0.930363 0.795191 0.853346 0.832598 0.730011
- 49 -
APPENDIX C: Varimax-rotated Factor Pattern for the Averages of the
Ratios 1974-1978
FACT1 FACT2 FACT3 FACT4 FACT5
X24 0.938 . . . . E/P-ratio
X7 0.812 . . . . return on equity
X8 0.622 . 0.603 . . return on total assets
X26 0.516 . . 0.474 -0.420 return on the security
X1 0.494 . . . . quick ratio
X4 -0.584 . . -0.463 0.370 total liabilities/sales
X5 -0.748 . . . . long-term debt to equity
X17 . 0.901 0.302 . . cash margin Ib / total ass.
X16 . 0.875 . -0.306 . cash net income / cash sales
X20 . 0.851 . . . cash netinc / int bear debt
X21 . 0.684 0.575 . . cash to inter / cash marg Ib
X10 . 0.574 . . -0.459 inventory turnover period
X22 . . 0.872 . . dividend payout ratio
X6 0.427 . 0.803 . . times interest earned
X12 0.375 . 0.634 . . labor intensiveness
X3 0.384 -0.414 0.463 0.351 . net work. cap. to tot. ass.
X13 . . . 0.848 . variable costs/fixed costs
X19 . . . 0.793 . cash to mat & w / cash sales
X9 . . . -0.764 . operating margin
X15 . . . . 0.841 size
X27 . . . . 0.821 security's beta
X25 . . . . 0.548 market to book ratio
X11 . . . . .
X2 . . . -0.376 .
X28 . . . . .
X23 0.468 . . . .
X14 . . . . .
X18 . . . . .
NOTE: VALUES LESS THAN 0.3 HAVE BEEN PRINTED AS '.'
- 50 -
FACT6 FACT7 FACT8 FACT9 FACT10
X24 . . . . .
X7 . . . . .
X8 . . . . .
X26 . . . . .
X1 -0.434 . . . 0.485
X4 . . . . -0.330
X5 . . . . .
X17 . . . . .
X16 . . . . .
X20 . . . . .
X21 . . . . .
X10 . -0.306 . . 0.378
X22 . . . . .
X6 . . . . .
X12 . . . . 0.322
X3 . . . . 0.420
X13 . . . . .
X19 . . . . .
X9 . . 0.349 . -0.305 (operating margin)
X15 . . . . .
X27 . . . . .
X25 . . . 0.511 .
X11 0.941 . . . . acc. rec. turnover period
X2 -0.825 . . . . defensive interval measure
X28 . 0.875 . . . security's total risk
X23 . -0.560 . . 0.315 dividend yield
X14 . . 0.933 . . growth rate
X18 . . . 0.871 . cash to cap inv / cash sales
- 51 -
VARIANCE EXPLAINED BY EACH FACTOR
FACTOR1 FACTOR2 FACTOR3 FACTOR4 FACTOR5
4.378313 3.649694 3.240343 3.071599 2.625934
FACTOR6 FACTOR7 FACTOR8 FACTOR9 FACTOR10
2.096879 1.632641 1.501724 1.378910 1.248399
Cumulative Proportion of total variance
FACTOR1 FACTOR2 FACTOR3 FACTOR4 FACTOR5
0.2661 0.4200 0.5305 0.6154 0.6803
FACTOR6 FACTOR7 FACTOR8 FACTOR9 FACTOR10
0.7402 0.7891 0.8282 0.8597 0.8866
FINAL COMMUNALITY ESTIMATES: TOTAL = 24.824436
X1 X2 X3 X4 X5 X6 X7
0.872644 0.894561 0.914550 0.900938 0.765444 0.942703 0.908289
X8 X9 X10 X11 X12 X13 X14
0.922396 0.921668 0.935987 0.928411 0.907007 0.877017 0.914587
X15 X16 X17 X18 X19 X20 X21
0.834947 0.930683 0.941563 0.843185 0.885844 0.935010 0.965654
X22 X23 X24 X25 X26 X27 X28
0.844763 0.876725 0.922139 0.748515 0.825211 0.850206 0.813790
- 52 -
APPENDIX D: Varimax-rotated Factor Pattern for the Averages of the
Ratios 1979-1984
FACT1 FACT2 FACT3 FACT4 FACT5
X12 0.912 . . . . labor intensiveness
X6 0.817 0.365 . . . times interest earned
X22 0.812 . . . . dividend payout ratio
X3 0.688 . . . . net work. cap. to tot. ass.
X4 -0.564 . -0.332 0.504 . total liabilities/sales
X20 . 0.922 . . . cash netinc / int bear debt
X16 -0.316 0.741 . . . cash net income / cash sales
X21 0.580 0.739 . . . cash to inter / cash marg Ib
X1 . 0.682 . . -0.430 quick ratio
X7 . . 0.854 . . return on equity
X24 . . 0.836 . . E/P-ratio
X8 0.429 . 0.619 . . return on total assets
X9 -0.355 . . 0.794 . operating margin
X14 . . . 0.741 . growth rate
X5 -0.377 . . 0.532 . long-term debt to equity
X11 . . . . 0.906 acc. rec. turnover period
X2 . . . . -0.868 defensive interval measure
X10 . . . . .
X17 . 0.509 . . .
X19 . . . -0.408 .
X25 . . . . .
X13 . . . . 0.356
X27 . . 0.372 . .
X15 . . . 0.340 .
X26 . . 0.448 . -0.310
X23 . . . . .
X28 . . . . .
X18 . . . . .
NOTE: VALUES LESS THAN 0.3 HAVE BEEN PRINTED AS '.'
- 53 -
FACT6 FACT7 FACT8 FACT9 FACT10
X12 . . . . .
X6 . . . . .
X22 . . . . -0.338
X3 . . . . .
X4 . . . . .
X20 . . . . .
X16 0.303 . . . .
X21 . . . . .
X1 . . . . .
X7 . . . . .
X24 . . . . .
X8 . . . 0.361 .
X9 . . . . .
X14 . . . . .
X5 . . . 0.430 .
X11 . . . . .
X2 . . . . .
X10 0.957 . . . . inventory turnover period
X17 0.574 . . 0.436 . cash margin Ib / total ass.
X19 -0.650 . . . . cash to mat & w / cash sales
X25 . 0.794 . . . market to book ratio
X13 . 0.752 . . . variable costs / fixed costs
X27 . . 0.817 . . security's beta
X15 . . 0.739 . . size
X26 . . -0.578 -0.302 . return on the security
X23 . . . 0.822 . dividend yield
X28 . . . . 0.874 security's total risk
X18 . -0.433 . . -0.600 cash to cap inv / cash sales
NOTE: VALUES LESS THAN 0.3 HAVE BEEN PRINTED AS '.'
- 54 -
VARIANCE EXPLAINED BY EACH FACTOR
FACTOR1 FACTOR2 FACTOR3 FACTOR4 FACTOR5
4.316926 3.367783 2.741719 2.475085 2.309695
FACTOR6 FACTOR7 FACTOR8 FACTOR9 FACTOR10
1.996683 1.995761 1.940643 1.815787 1.767355
Cumulative Proportion of total variance
FACTOR1 FACTOR2 FACTOR3 FACTOR4 FACTOR5
0.2349 0.4115 0.5052 0.5891 0.6673
FACTOR6 FACTOR7 FACTOR8 FACTOR9 FACTOR10
0.7258 0.7803 0.8246 0.8580 0.8831
FINAL COMMUNALITY ESTIMATES: TOTAL = 24.727437
X1 X2 X3 X4 X5 X6 X7
0.905749 0.880392 0.846420 0.909287 0.818603 0.916645 0.940584
X8 X9 X10 X11 X12 X13 X14
0.844907 0.952743 0.952222 0.912810 0.903211 0.818652 0.888208
X15 X16 X17 X18 X19 X20 X21
0.836716 0.937781 0.915702 0.776996 0.874437 0.932460 0.950174
X22 X23 X24 X25 X26 X27 X28
0.888035 0.790788 0.849289 0.846701 0.863722 0.895879 0.878326
- 55 -
APPENDIX E: Transformation Matrix 1974-78 to 1979-84 (L12)
1 2 3 4 5
1 0.185 0.077 0.905* -0.241 -0.156
2 -0.185 0.836* 0.074 0.046 0.187
3 0.874* 0.171 -0.059 0.095 0.127
4 0.080 0.121 -0.112 -0.344 0.106
5 -0.150 0.220 -0.006 0.023 -0.054
6 0.042 -0.161 0.070 -0.036 0.912*
7 0.052 0.362 -0.170 -0.062 -0.019
8 0.122 0.019 0.108 0.852* -0.075
9 0.131 0.196 -0.268 -0.101 -0.153
10 0.321 -0.081 -0.207 -0.264 -0.224
6 7 8 9 10
1 -0.019 0.007 0.008 -0.241 -0.026
2 0.390 0.103 -0.113 0.213 -0.062
3 -0.158 -0.143 0.073 0.348 -0.083
4 -0.434 0.743 -0.235 -0.019 0.202
5 -0.293 0.119 0.908* 0.003 -0.019
6 0.126 0.004 0.142 -0.313 -0.028
7 -0.262 -0.464 -0.090 -0.468 0.567
8 0.014 0.354 -0.047 -0.308 0.136
9 -0.052 0.018 -0.066 -0.563 -0.718
10 0.679 0.248 0.258 -0.217 0.302
- 57 -
APPENDIX G: The Firms Included in the Sample
TOL 31 Manufacture of Food, Beverages and Tobacco:
Huhtamäki, Rettig, Suomen Sokeri
TOL 32 Textile, Wearing Apparel and Leather Industries:
Finlayson, Lassila & Tikanoja, Tamfelt, Suomen Trikoo
TOL 34 Manufacture of Paper and Paper Products, Printing and
Publishing:
Enso-Gutzeit, Kajaani, Kaukas, Kemi, Kymi-Strömberg, Otava,
Wilh. Schauman, G.A. Serlachius, Tampella, Yhtyneet Paperitehtaat
TOL 36 Manufacture of Non-metallic Mineral Products, Except
Products of Petroleum and Coal:
Lohja, Partek
TOL 38 Manufacture of Fabricated Metal Products, Machinery and
Equipment:
Fiskars, Instrumentarium, Nokia, Rauma-Repola, W. Rosenlew,
Wärtsilä;
TOL 61 Wholesale Trade:
Ford, Kesko, Rake, Tamro, Talous-Osakekauppa
TOL 62 Retail Trade:
Stockmann
TOL 71 Transport and Storage:
Effoa
The previous section (References)
The contents section of Salmi, Virtanen and Yli-Olli (1990)
Other scientific publications by Timo Salmi in WWW format
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