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

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.

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Publication Details

Journal
Journal of risk and financial management
Published
2024-08-05
DOI
https://doi.org/10.3390/jrfm17080338
Citations
3
Primary Topic
Financial Reporting and Valuation Research
Type
article
Field-Weighted Citation Impact
1.66
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article

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

Robert Zenzerović, Manuel Benazić
3 citations
Journal of risk and financial management
Financial Reporting and Valuation Research
1.66
article

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

Robert Zenzerović, Manuel Benazić
article en
3 citations

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.

Journal of risk and financial managementVol. 17(8)
Juraj Dobrila University of Pula (HR)
Decent work and economic growth
Openalex Percentile: Top 12%
Financial Reporting and Valuation Research
1.66
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The Impact of Selected Financial Ratios on Economic Value Added: Evidence from Croatia — Robert Zenzerović, Manuel Benazić · Journal of risk and financial management (2024) | TGRS Research Map | TGRS