The aim of this article is to analyse the short-term solvency of large companies in the wine sector in the period 2014-2018, in two relevant Spanish wine-production areas and assess significant differences in time and between regions. Liquidity is a direct threat to the financial health of companies and is analysed using standard financial indicators and compositional data, in order to prevent the common outlier, non-linearity and asymmetry problems in standard financial ratios. The study shows that the compositional ratios are statistically more adequate and that the turnover indicator between operating cash inflows with respect to current investments and operating cash outflows with respect to current liabilities is a complementary indicator to standard cash flow ratios. Wineries in La Rioja have better liquidity than Catalan wineries in the period under study.
Due to the type of mathematical construction, the use of standard financial ratios in studies analyzing the financial health of a group of firms leads to a series of statistical problems that can invalidate the results obtained. These problems originate from the asymmetry of financial ratios. The present article justifies the use of a new methodology using Compositional Data (CoDa) to analyze the financial statements of an industry, improving analyses using conventional ratios, since the new methodology enables statistical techniques to be applied without encountering any serious drawbacks, such as skewness and outliers, and without the results depending on the arbitrary choice as to which of the accounting figures is the numerator of the ratio and which is the denominator. An example with data on the wine industry is provided. The results show that when using CoDa, outliers and skewness are much reduced, and results are invariant to numerator and denominator permutation.
Purpose
This study aims to focus on the impact of COVID-19 on the Spanish wine sector and the financial resilience of Spanish wineries in the period 2019–2020.
Design/methodology/approach
The data set contains 355 limited companies of the Spanish wine sector which were active in the period 2019–2020. The explanatory variables used are size and age of the company, exports, subsidies and gender distribution in the workforce. The financial statements of the companies are treated as compositional data, using log-ratios for asset structure, leverage, margin, turnover and debt maturity. The first-difference estimator is used for the panel-data model relating the differences in the log-ratios between 2020 and 2019 to the explanatory variables.
Findings
In average terms, margin and turnover have significantly worsened between 2019 and 2020, while debt maturity has increased. A larger firm size, a greater age, a higher share of women in the workforce and subsidies have made wineries more resilient between 2019 and 2020.
Originality/value
To the best of the authors’ knowledge, this is the first financial statement analysis of the impact of COVID-19 in the winery sector.
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