Hello, i have a topic that i'm really lost:
Influence of a company's (sales) growth RATE on the investment RATIO (in assets) and the profit in the FINANCIAL STATEMENTS - an empirical analysis of annual financial statements (Bachelor) or a model analysis.
I have read many researches which used regression analysis to describe the relationship between sales growth and profit, or assets growth and profit. But my research question is, how many x% should we invest in assets, when we want to have y % in sales growth, and how does the results of y% sales growth present in profit that we can see in the financial statements. Could you guys please recommend me some papers or researches which related to my question and which keywords should i use to find them.
Is model analysis a research method? Can i apply it to solve my question?
Thank you for your help!!!
Hi My Anh Trinh ,
I think that you should also focus on DuPont model in your research as the two drivers of the model (Assets Turnover and Profit Margin) explain the growth of Return on Assets. At the same time Assets turnover and Profit Margin are related to growth in sales.
You can check the following papers for some ideas:
Fairfield P.M., Yohn T.L. 2001. Using asset turnover and profit margin to forecast changes in profitability. Review of accounting studies 6 (4): 371-385.
Fairfield P.M., Kitching K.A., Tang V.W. 2009. Are special items informative about future profit margins? Review of accounting studies 14: 204-236
Habib A. 2006. Disaggregated earnings and prediction of future profitability: evidence from industrial groups in Japan. Review of Accounting and Finance 5 (4): 355-369.
Soliman M.T. 2003. Using industry-adjusted DuPont analysis to predict future profitability. Working paper, Stanford University, CA.
Dear Tatiana, I am not too clear about your question but I will attempt to respond from the angle I am seeing it. Please correct me.
You know When you run a Linear regression Analysis/ Multiple. Your Coefficient(s) X variables value are the explanatory variables. Implying that a 1 unit change or 1% change in X will bring about say 2.5% unit change or the Percentage change in the Y variable. I think you can use the coefficient to interpret your result...
or use the DuPont model as My Anh Trinh suggested..
By the company's growth rate, do you mean the growth rate of return on assets (ROA), return on equity (ROE), Profit Margin, etc.? And are you planning to put these as Dependent Variables or Independent Variables? You need to know the answers to these questions before starting your study.
It is worthwhile to note the reality that just because a company invests in assets (expands) does not mean it can grow in Sales too. Assets (Fixed or Current) at best support sales , they are not a causal factor for Sales. Sales are dependent on the demand for the product and demand of course is dependent how the product is, how the market is etc.
However if one still makes a simplistic assumptions that Sales grow in a linear proportion to the assets . The relevant ratio to look for is the Asset Turnover Ratio (A.T.R) = Sales / Assets. e.g. if ATR is 2 it means every one $ or Rs. (Indian Rupee) of Asset is generating 2 times of that as Sales. So if assets which were 100 now become 120, the sales would grow from 200 to 240 (20%) , if the same ATR is maintained.
Net Profit Margin (NPM) = Net Profit/ Sales , so if the company has a NPM of 30% , it implies that if sales are Rs. 200 the profit will be 30% of Rs. 200 (=Rs. 60). If the NPM is maintained at 30% ,with the growth in sales ('due' to assets expansion ) the new profit will be 30% of increased sales (i.e 30% of 240 = Rs. 72) again a 20% rise.
This implies that if ATR are NPM are maintained , a Rise of 1% in Assets will lead to rise of 1% in Sales as well as Net profit from the previous levels.
Pinakin Jaiswal
Thank you so much for your answer!!
I just still have a question: Can we call this type of analysis a model analysis ? And could you please recommend me more related research about it? Your answer is so close with my thought about this topic.
Tatiana Garanina
Thank you for your help!
I have searched about the DuPont Model but i realised that they focus about how the DuPont Model components affect ROE? But ROE is none of my concern so i'm not sure if DuPont Model is the right model for my topic? What do you think about my opinion?
My Anh Trinh , there are different options of DuPont model. You can also find the one with ROA approach that may be suitable for your research.
El volumen de ventas (en el caso de productos de alta rotación) y el margen neto (en el caso de productos de lenta rotación) es lo que determina la utilidad que pueda tener la empresa. Puedes aplicar una variedad de ratios o indicadores a partir de los EEFF y puedes interpretarlos de muchas formas; pero lo cierto es que si tienes un buen producto, demandado por el mercado, con un precio razonable, canales de distribución y ventas adecuados, vas a tener utilidades.
Lo importante es el uso eficiente de los recursos de la empresa, de los activos fijos, tecnología, maquinarias y equipos, personal capacitado, procesos adecuados, control de calidad entre otros.
Otro aspecto importante es el costo de oportunidad del inversionista, a veces es más elevado que el costo de un préstamo.
Por último te pregunto ¿Puede la empresa tercerizar su producción, comercialización y ventas? la respuesta altera totalmente los indicadores que hallas podido encontrar.
Para obtener una respuesta precisa debes de tener una mayor información de la empresa, del sector económico y de la situación país, no te olvides que vivimos en un mundo globalizado.
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