The relationship between profitability and financial liquidity among the importers of best-selling brands of new cars in poland

Paweł Łojek

Open Access

The relationship between profitability and financial liquidity among the importers of best-selling brands of new cars in poland

Paweł Łojek

| Oct 23, 2020

Central European Economic Journal

Volume 7 (2020): Issue 54 (January 2020)

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Page range: 127 - 142

DOI: https://doi.org/10.2478/ceej-2020-0011

Keywords
financial liquidity, automotive sector, cash flow statement, ratio analysis

© 2020 Paweł Łojek et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Classification of the company's stakeholders. Source: Wędzki (2009).

Companies on the automotive market. Source: Łojek, 2020.

Indicators of the third-level analysis of financial liquidity from 2015 to 2019 for the analysed companies. Source: Łojek, 2020.

Ratio analysis of financial statements of the studied entities

Ratio	Company 1					Company 2					Company 3					Company 4					Company 5					Company 6
Ratio	2015	2016	2017	2018	2019	2015	2016	2017	2018	2019	2015	2016	2017	2018	2019	2015	2016	2017	2018	2019	2015	2016	2017	2018	2019	2015	2016	2017	2018	2019
operating cash flow/sales ratio	0.03	0.03	0.01	0.01	0.01	0.03	0.03	0.03	0.03	0.03	0.02	0.02	−0.01	0	0	0.01	0.01	0.02	0.01	0.01	0.01	0.01	0.11	0.05	0.05	−0.02	−0.02	0.06	0.03	0.03
operating cash flow/current assets ratio	5.85	5.85	0.06	0.29	0.29	0.29	0.29	0.27	0.21	0.21	0.16	0.16	−0.03	0.03	0.03	5.79	5.79	0.1	0.3	0.3	0.03	0.03	0.37	0.18	0.18	−0.15	−0.15	0.25	0.1	0.1
operating cash flow/current liabilities ratio	0.29	0.29	0.09	0.14	0.14	0.66	0.66	0.51	0.35	0.35	0.19	0.19	−0.04	0.03	0.03	0.04	0.04	0.06	0.04	0.04	0.05	0.05	0.58	0.42	0.42	−0.2	−0.2	0.31	0.15	0.15
current liquidity ratio	1.87	1.87	1.68	1.74	1.74	2.32	2.32	1.91	1.71	1.71	1.23	1.23	1.45	1.67	1.67	0.61	0.61	1.51	1.53	1.53	1.7	1.7	1.59	2.37	2.37	1.31	1.31	1.26	1.46	1.46
quick ratio	1.42	1.42	1.18	1.27	1.27	1.73	1.73	1.61	1.39	1.39	0.3	0.3	0.27	0.1	0.1	1.21	1.21	1.21	1.21	1.21	1.18	1.18	1.22	1.43	1.43	1	1	0.9	1.07	1.07
immediate liquidity ratio	0.02	0.02	0.01	0.01	0.01	0.2	0.2	0.01	0.1	0.1	0.2	0.2	0.13	0.93	0.93	0.47	0.47	0.41	0.47	0.47	0.73	0.73	0.2	0.53	0.53	0.84	0.84	0.75	0.53	0.53
inventory turnover cycle	10	10	15	13	13	9	9	4	7	7	8	8	7	6	6	21	21	25	31	31	15	15	18	12	12	4	4	5	6	6
receivables turnover cycle	14	14	18	20	20	4	4	9	7	7	5	5	3	3	3	34	34	42	34	34	24	24	13	16	16	6	6	10	11	11
liabilities turnover cycle	6	6	5	8	8	6	6	9	6	6	5	5	5	4	4	15	15	18	20	20	12	12	15	8	8	3	3	6	5	5
cash conversion cycle	18	18	27	25	25	7	7	4	8	8	8	8	5	5	5	40	40	49	45	45	27	27	16	20	20	7	7	9	12	12
overall financial condition ratio	2.56	2.56	2.47	2.47	2.47	0.88	0.88	0.94	1.01	1.01	2.58	2.58	1.64	1.78	1.78	0.13	0.13	0.15	0.13	0.13	3.06	3.06	4.9	5.19	5.19	0.44	0.44	0.52	0.64	0.64
ROA	4.32%	4.32%	4.39%	4.09%	4.09%	5.85%	5.85%	6.06%	5.23%	5.23%	3.75%	3.75%	8.89%	6.24%	6.24%	3.95%	3.95%	3.76%	3.94%	3.94%	1.33%	1.33%	3.91%	8.43%	8.43%	0.37%	0.37%	1.07%	0.75%	0.75%
ROS	0.86%	0.86%	0.87%	0.79%	0.79%	0.77%	0.77%	0.96%	0.77%	0.77%	0.58%	0.58%	1.42%	0.97%	0.97%	1.56%	1.56%	1.68%	1.56%	1.56%	0.35%	0.35%	1.28%	2.37%	2.37%	0.05%	0.05%	0.26%	0.20%	0.20%
ROE	22.04%	22.04%	25.81%	25.81%	25.81%	84.67%	84.67%	88.39%	62.57%	62.57%	18.33%	18.33%	33.89%	22.45%	22.45%	32.85%	32.85%	32.57%	32.85%	32.85%	10.64	10.64	24.32%	44.95%	44.95%	8.96%	8.96%	32.38%	22.56%	22.56%

Correlation matrix (r-Pearson correlation coefficient) between the study variables and the liquidity and profitability of the companies analysed

	Operating cash flow/sales ratio	Operating cash flow/current assets ratio	Operating cash flow/current liabilities ratio	Current liquidity ratio	Quick ratio	Immediate liquidity ratio	ROA	ROS	ROE
Operating cash flow/sales ratio	1.000	0.023	0.773***	0.307*	0.352*	−0.272	0.155	0.254	0.290
Operating cash flow/current assets ratio		1.000	−0.003	−0.332*	0.222	−0.221	0.017	0.199	−0.080
Operating cash flow/current liabilities ratio			1.000	0.620***	0.532***	−0.491***	0.429**	0.211	0.744***
Current liquidity ratio				1.000	0.428**	−0.225	0.489***	0.199	0.485***
Quick ratio					1.000	−0.394**	0.005	0.165	0.537***
Immediate liquidity ratio						1.000	−0.348	−0.130	−0.424**
ROA							1.000	0.735***	0.539***
ROS								1.000	0.268
ROE									1.000

Breakdown of financial statements.

Item	Characteristics
Scope	Annual separate/annual total/annual consolidated
Obligatory or not	Obligatory/optional
Obligation to publish	Must be published/does not have to be published
Frequency	Systematically/sporadically
Degree of generality	Synthetic/analytical
Reporting period	Ex post (actual return)/ex ante (expected return)
Recipients	External/internal

Items of the cash flow statement in business operations

Direct method

Indirect method

Cash flows from operating activities

Receivables

Sales

Other proceeds from operation activities

Expenses

Supplies and services

Net salaries

Social and health insurance and other benefits

Taxes and public law charges

Other operating expenses

Net cash flows from operating activities (I–II)

Cash flows from operating activities

Result (net profit/loss)

Adjustments total

Depreciation

Profits (losses) due to exchange rate differences

Interest and shares in dividends

Profit (loss) on investment

Change in reserves

Change in inventory

Change in receivables

Change in short-term liabilities, except for loans and credits

Change in the status of accruals

Other adjustments

Net cash flows from operating activities (I–II)

Companies studied in empirical research

Car brand	Registered name of the company
Skoda, Volkswagen, Audi	Volkswagen Group Polska
Renault, Dacia	Renault Poland
Toyota	Toyota Motor Poland Company Limited
Kia	Kia Motors Polska
Mercedes	Mercedes-Benz Poland
BMW	BMW Vertriebs GMBH Polish branch
Ford	Ford Polska

Functions of financial ratios

Group of ratios	Purposes
Financial liquidity	Assessment of the company's ability to settle liabilities (mainly short-term perspective)
Solvency	Assessment of the risk of the company's possible bankruptcy (short-term and long-term perspective)
Management efficiency	Assessment of the opportunities and threats in the area of effective management (mainly current operations and outlook for the future)
Profitability	Assessment of the company's profitability (the prospect of current benefits)

Financial analysis ratios selected for empirical research

Item	Calculation formula
Operating cash flow to sales ratio	$\frac{operating cash flow}{net sales revenue}$ {{{\rm{operating}}\,{\rm{cash}}\,{\rm{flow}}} \over {{\rm{net}}\,{\rm{sales}}\,{\rm{revenue}}}}
Operating cash flow to current assets ratio	$\frac{operating cash flow}{average current assets}$ {{{\rm{operating}}\,{\rm{cash}}\,{\rm{flow}}} \over {{\rm{average}}\,{\rm{current}}\,{\rm{assets}}}}
Operating cash flow to current liabilities ratio	$\frac{operating cash flow}{total liabilities}$ {{{\rm{operating}}\,{\rm{cash}}\,{\rm{flow}}} \over {{\rm{total}}\,{\rm{liabilities}}}}
3rd degree (current) liquidity ratio	$\frac{current assets}{short-term liabilities}$ {{{\rm{current}}\,{\rm{assets}}} \over {{\rm{short}\text{-}\rm{term}}\,{\rm{liabilities}}}}
2nd degree (quick) liquidity ratio	$\frac{current assets-inventory}{short-term liabilities}$ {{{\rm{current}}\,{\rm{assets}\text{-}\rm{inventory}}} \over {{\rm{short}\text{-}\rm{term}}\,{\rm{liabilities}}}}
1st degree (immediate) liquidity ratio	$\frac{cash available}{short-term liabilities}$ {{{\rm{cash}}\,{\rm{available}}} \over {{\rm{short}\text{-}\rm{term}}\,{\rm{liabilities}}}}
Inventory turnover cycle	$\frac{average inventory}{costs of goods sold} \times number of days$ {{{\rm{average}}\,{\rm{inventory}}} \over {{\rm{costs\, of}}\,{\rm{goods}}\, {\rm{sold}}}} \times {\rm{number}}\,{\rm{of}}\,{\rm{days}}
Receivables turnover cycle	$\frac{short-term liabilities}{net sales revenue} \times number of days$ {{{\rm{short}\text{-}\rm{term}}\,{\rm{liabilities}}} \over {{\rm{net}}\, {\rm{sales}}\, {\rm{revenue}}}} \times {\rm{number}}\,{\rm{of}}\,{\rm{days}}
Short-term liabilities turnover cycle	$\frac{average short-term liabilities}{cost of goods sold} \times number of days$ {{{\rm{average}}\,{\rm{short}\text{-}\rm{term}}\, {\rm{liabilities}}} \over {{\rm{cost}}\, {\rm{of}}\,{\rm{goods}}\, {\rm{sold}}}} \times {\rm{number}}\,{\rm{of}}\,{\rm{days}}
Cash conversion cycle	turnover cycle = (inventories + receivables - short-term liabilities)
Working capital ratio	current assets - short-term liabilities
overall financial condition ratio	$\frac{equity/fixed assets}{total liabilities/current assets}$ {{{\rm{equity/fixed}}\, {\rm{assets}}} \over {{\rm{total}}\, {\rm{liabilities/current}}\, {\rm{assets}}}}
ROA (return on assets)	$\frac{net return}{total assets} \times 100 %$ {{{\rm{net}}\, {\rm {return}}} \over {{\rm{total}}\, {\rm {assets}}}} \times {\rm{100\% }}
ROS (return on sales)	$\frac{net return}{sales revenues} \times 100 %$ {{{\rm{net}}\, {\rm {return}}} \over {{\rm{sales}}\, {\rm {revenues}}}} \times {\rm{100\% }}
ROE (return on equity)	$\frac{net return}{equity} \times 100 %$ {{{\rm{net}}\, {\rm {return}}} \over {{\rm{equity}}}} \times {\rm{100\% }}

An attempt at a synthetic assessment of the studied group of entities

Item	The most commonly occurring
The most favourable situation	Company 1
The most stable situation	Company 2
The least favourable situation	Company 3 and 6

eISSN:: 2543-6821
Language:: English

Publication timeframe:: Volume Open
Journal Subjects:: Business and Economics, Political Economics, Economic Theory, Systems and Structures, Microeconomics, Macroecomics, Economic Policy

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The relationship between profitability and financial liquidity among the importers of best-selling brands of new cars in poland

Published Online: Oct 23, 2020

Page range: 127 - 142

DOI: https://doi.org/10.2478/ceej-2020-0011

Keywords
financial liquidity, automotive sector, cash flow statement, ratio analysis

© 2020 Paweł Łojek et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Illustr. 1

Fig. 1

Fig. 2

Ratio analysis of financial statements of the studied entities

Correlation matrix (r-Pearson correlation coefficient) between the study variables and the liquidity and profitability of the companies analysed

Breakdown of financial statements.

Items of the cash flow statement in business operations

Companies studied in empirical research

Functions of financial ratios

Financial analysis ratios selected for empirical research

An attempt at a synthetic assessment of the studied group of entities

The relationship between profitability and financial liquidity among the importers of best-selling brands of new cars in poland

Published Online: Oct 23, 2020

Page range: 127 - 142

DOI: https://doi.org/10.2478/ceej-2020-0011

Keywordsfinancial liquidity, automotive sector, cash flow statement, ratio analysis

© 2020 Paweł Łojek et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Illustr. 1

Fig. 1

Fig. 2

Ratio analysis of financial statements of the studied entities

Correlation matrix (r-Pearson correlation coefficient) between the study variables and the liquidity and profitability of the companies analysed

Breakdown of financial statements.

Items of the cash flow statement in business operations

Companies studied in empirical research

Functions of financial ratios

Financial analysis ratios selected for empirical research

An attempt at a synthetic assessment of the studied group of entities

Keywords
financial liquidity, automotive sector, cash flow statement, ratio analysis