Canonical Variate Analysis Applied to Determine Factors Influencing the Financial Situation of Feed Enterprises

Abstract

The purpose of this study was to present the factors that determine the financial situation of feed enterprises under different economic conditions. In the pursuit of its main objective, this paper also identifies enterprises which share similar financial characteristics. The goals defined above were sought with the use of canonical analysis. The variables used in the analysis were calculated based on the financial performance figures of feed enterprises carrying out economic activity in 2008-2013 on a continuous basis and delivering complete financial statements throughout that period. Their financial standing was assessed with indicators that allow to describe corporate operations in all areas of economic activity, i.e. liquidity, financial support, managerial efficiency and financial efficiency. This research found that while the group of feed enterprises is relatively homogeneous in terms of financial standing, it includes outliers exhibiting clearly different characteristics of the cash conversion cycle. The conclusion from this study is that operators who stand apart in terms of their different financial situation are engaged in animal production in addition to their core business (which is animal feed production). This suggests they follow a multi-modal activity pattern. The study also confirmed that during the economic downturn (in 2009), the operators surveyed saw their financial performance deteriorate. Conversely, they recorded an improvement in the years of economic upturn (2012). Another conclusion is that liquidity ratios exhibited greater variation.

Application of Canonical Variate Analysis to Compare Different Groups of Food Industry Companies in Terms of Financial Liquidity and Profitability

“…If several groups are analyzed simultaneously, similar to principal component analysis, the canonical variate analysis should be used [64]. Then, the relationships between selected variables and analyzed groups of enterprises are examined [53]. On the other hand, once it has been established that the groups under investigation are separate, a discriminatory function can be assigned to companies assigned to selected classes, e.g., companies that have gone bankrupt or are still operating [78,[82][83][84].…”

“…This allows an investor to evaluate the company's overall health. The cash conversion cycle (in days) is the difference between the days of the operating cycle and the days of the debt repayment cycle [53]. The operating cycle is defined as the days' sales of inventory plus days' sales outstanding [14].…”