Financial performance of publicly‐traded agribusinesses

Abstract

Structured Abstract:Purpose -Agribusinesses represent a fundamental link in connecting farmers with retailers and consumers, yet little research has been done to examine the historical financial performance of these food processing firms.Design/methodology/approach -Our research examines how publicly-traded agribusinesses perform financially compared to all firms over the period from 1961 to 2011. We utilize several indicators of company success, including financial ratios and balance sheet/income statement items, to compare agribusiness firms to all firms in the market. We perform the analysis over time and also for companies with low-, median, and high-performance. We also perform DuPont analysis to compare return on equity components between agribusinesses and all firms.Findings -We find that agribusinesses outperform at the median the sample of all firms in terms financial ratios related to profitability, liquidity, and market ratios, but have slightly lower liquidity and debt ratios. The DuPont analysis shows that the higher return on equity for agribusinesses is mostly due to higher asset turnover ratios, indicating higher operating efficiency of agribusinesses. The strong financial performance of food manufacturing agribusinesses makes them valuable companies in an investment portfolio.Originality/value -Our study provides a basic overview of financial ratios used to examine the financial performance of publicly-traded agribusinesses. Our findings show that agribusinesses outperform all firms in terms of key financial indicators.

The Effect of Intellectual Capital on Organizational Performance: The Mediating Role of Knowledge Sharing

“…[133] suggested that financial performance is usually measured using the following: return on assets (ROA), return on equity (ROE), return on investment (ROI), profit margin, earning per share, and value per employee. However, [134] reported that ROA and ROE are considered to be the most popular means for measuring a firm's financial performance. It must be noted that focusing solely on financial performance as a measure of organizational performance is not enough to improve financial results [121].…”

Exploring the Relationship between Financial Ratios and Market Stock Returns

“…Delen, Kuzey, and Uyar (2013) indicate that the most significant variables in forecasting future returns is net profit margin ratio and earnings before interest and tax to equity ratio. Katchova and Enlow (2013) evaluate Du Pont ratios to compare return on equity components among agri-businesses and all companies. The results of Du Pont ratios show that agri-businesses outperform at the median the sample of all companies in terms of financial ratios associated with liquidity, market ratios, and profitability, but had marginally lower debt ratios and liquidity ratios.…”

Altman Z-Score Model for Bankruptcy Forecasting of the Listed Lithuanian Agricultural Companies

“…Publicly-traded agribusinesses are defined as those that are publicly listed. Such firms have greater access to financing, because they can issue more stock, but are also subject to more regulation (Katchova and Enlow, 2013). Literature review shows, that such firms operate similarly to other public firms, thus allowing to apply Altman's model.…”

“…Robelo (2012) has evaluated the risk of insolvency for Portuguese agricultural credit cooperatives, and identified the main determinants of failure: customer base growth, transformation ratio, credit overdue, expenses ratio, structural costs, liquidity, indebtedness, and financial margin. Katchova and Enlow (2013) explored historical financial performance of publicly traded US agribusinesses and revealed that agribusinesses outperform that median sample of firms in terms of profitability, liquidity, operating efficiency and market ratios, but show lower liquidity and debt ratios. Lukason (2014) has investigated failure process and causes in the Estonian agricultural sector.…”

“…Agribusiness also includes all economic activities that support farm production and conversion of raw materials, such as machinery repairs, fertilizer production, farming itself, food processing and manufacturing, transportation, wholesale and retail trade (Katchova and Enlow, 2013).…”