- 44 - APPENDIX A: The Ratios ACCRUAL RATIOS Liquidity - quick ratio = current assets less inventories / current liabilities - defensive interval measure = current assets less inventories / daily expenditures to operations - net working capital to total asset Capital Adequacy - total liabilities / sales - long-term debt to equity - times interest earned = earnings before interest and taxes plus depreciation / interest Profitability - return (after interest and taxes) on equity = net income / common equity - return on total assets - operating margin / sales Efficiency (turnover ratios) - inventory turnover period = average inventory / cost of goods sold - accounts receivable turnover period = receivables / sales Operating Leverage - labor intensiveness = personnel expenditures / adjusted real-term fixed assets - variable costs / fixed costs Riskiness Volume - growth rate = long-term growth rate of deflated sales - size = firm's total assets in proportion to the largest firm (annual figures) - 45 - CASH FLOW RATIOS - cash net income (cash margin II) divided by cash from sales - cash operating income (cash margin Ib) divided by total assets - cash outflow to capital investments divided by cash from sales - cash outflow to materials & supplies and wages & salaries divided by cash from sales - cash net income (cash margin II) divided by interest bearing debt (average) - cash outflow to interest payments divided by cash operating income (cash margin Ib) MARKET-BASED RATIOS Firm Ratios - dividend payout ratio = dividends per share / earnings per share Combined Ratios - dividend yield - E/P (inverse of price per earnings) - market to book ratio = stock price per share / book value per share Pure Market Ratios - return on the security (capital gains and dividend yield) - security's beta - security's total risk - 46 - APPENDIX B: Varimax-rotated Factor Pattern for the Averages of the Ratios 1974-1984 FACT1 FACT2 FACT3 FACT4 FACT5 X3 0.903 . . . . net work. cap. to tot. ass. X12 0.777 . . . . labor intensiveness X6 0.717 . . . . times interest earned X1 0.717 0.418 . . 0.338 quick ratio X4 -0.684 . -0.372 0.329 . total liabilities/sales X17 . 0.912 . . . cash margin Ib / total ass. X16 . 0.905 . . . cash net income / cash sales X20 . 0.788 0.309 . . cash netinc. / int bear debt X21 0.505 0.714 . . . cash to inter / cash marg Ib X10 . 0.659 . -0.511 . inventory turnover period X19 0.353 -0.461 0.302 0.357 . cash to mat & w / cash sales X24 0.362 . 0.861 . . E/P-ratio X7 . 0.302 0.646 . . return on equity X26 . . 0.620 -0.519 . return on the security X5 -0.436 . -0.491 . . long-term debt to equity X27 . . . 0.873 . security's beta X15 . . . 0.834 . size X2 . . . . 0.844 defensive interval measure X11 . . . . -0.835 acc. rec. turnover period X14 . . . . . X9 -0.369 . . . . X22 . . . . . X8 0.397 0.350 0.429 . . X18 . . . . . X28 . . . . . X23 . . . . . X13 . . . . -0.323 X25 . . . 0.423 0.390 NOTE: VALUES LESS THAN 0.3 HAVE BEEN PRINTED AS '.' - 47 - FACT6 FACT7 FACT8 FACT9 FACT10 X3 . . . . . X12 . . . . . X6 0.316 0.360 . . . X1 . . . . . X4 0.332 . . . . X17 . . . . . X16 . . . . . X20 . . . . . X21 . . . . . X10 . . . . . X19 . . . . 0.327 X24 . . . . . X7 0.307 . . . . X26 . . . . . X5 . . . 0.457 . X27 . . . . . X15 . . . . . X2 0.312 . . . . X11 . . . . . X14 0.873 . . . . growth rate X9 0.729 . . . . operating margin X22 . 0.928 . . . dividend payout ratio X8 . 0.581 . . . return on total assets X18 . . 0.791 . . cash to cap inv / cash sales X28 . . -0.743 . . security's total risk X23 . . . 0.864 . dividend yield X13 . . . . 0.824 variable costs/fixed costs X25 . . . . 0.500 market to book ratio NOTE: VALUES LESS THAN 0.3 HAVE BEEN PRINTED AS '.' - 48 - VARIANCE EXPLAINED BY EACH FACTOR FACTOR1 FACTOR2 FACTOR3 FACTOR4 FACTOR5 4.403194 4.238279 2.715487 2.622527 2.241442 FACTOR6 FACTOR7 FACTOR8 FACTOR9 FACTOR10 2.109226 1.929188 1.510821 1.400599 1.336602 Cumulative Proportion of total variance FACTOR1 FACTOR2 FACTOR3 FACTOR4 FACTOR5 0.2451 0.4264 0.5268 0.6150 0.6760 FACTOR6 FACTOR7 FACTOR8 FACTOR9 FACTOR10 0.7317 0.7770 0.8144 0.8463 0.8753 FINAL COMMUNALITY ESTIMATES: TOTAL = 24.507366 X1 X2 X3 X4 X5 X6 X7 0.908735 0.892475 0.936411 0.909261 0.820585 0.893423 0.937337 X8 X9 X10 X11 X12 X13 X14 0.903409 0.910361 0.900782 0.813549 0.860574 0.829672 0.871482 X15 X16 X17 X18 X19 X20 X21 0.863071 0.937182 0.941458 0.743830 0.859216 0.893015 0.956612 X22 X23 X24 X25 X26 X27 X28 0.905599 0.877821 0.930363 0.795191 0.853346 0.832598 0.730011 - 49 - APPENDIX C: Varimax-rotated Factor Pattern for the Averages of the Ratios 1974-1978 FACT1 FACT2 FACT3 FACT4 FACT5 X24 0.938 . . . . E/P-ratio X7 0.812 . . . . return on equity X8 0.622 . 0.603 . . return on total assets X26 0.516 . . 0.474 -0.420 return on the security X1 0.494 . . . . quick ratio X4 -0.584 . . -0.463 0.370 total liabilities/sales X5 -0.748 . . . . long-term debt to equity X17 . 0.901 0.302 . . cash margin Ib / total ass. X16 . 0.875 . -0.306 . cash net income / cash sales X20 . 0.851 . . . cash netinc / int bear debt X21 . 0.684 0.575 . . cash to inter / cash marg Ib X10 . 0.574 . . -0.459 inventory turnover period X22 . . 0.872 . . dividend payout ratio X6 0.427 . 0.803 . . times interest earned X12 0.375 . 0.634 . . labor intensiveness X3 0.384 -0.414 0.463 0.351 . net work. cap. to tot. ass. X13 . . . 0.848 . variable costs/fixed costs X19 . . . 0.793 . cash to mat & w / cash sales X9 . . . -0.764 . operating margin X15 . . . . 0.841 size X27 . . . . 0.821 security's beta X25 . . . . 0.548 market to book ratio X11 . . . . . X2 . . . -0.376 . X28 . . . . . X23 0.468 . . . . X14 . . . . . X18 . . . . . NOTE: VALUES LESS THAN 0.3 HAVE BEEN PRINTED AS '.' - 50 - FACT6 FACT7 FACT8 FACT9 FACT10 X24 . . . . . X7 . . . . . X8 . . . . . X26 . . . . . X1 -0.434 . . . 0.485 X4 . . . . -0.330 X5 . . . . . X17 . . . . . X16 . . . . . X20 . . . . . X21 . . . . . X10 . -0.306 . . 0.378 X22 . . . . . X6 . . . . . X12 . . . . 0.322 X3 . . . . 0.420 X13 . . . . . X19 . . . . . X9 . . 0.349 . -0.305 (operating margin) X15 . . . . . X27 . . . . . X25 . . . 0.511 . X11 0.941 . . . . acc. rec. turnover period X2 -0.825 . . . . defensive interval measure X28 . 0.875 . . . security's total risk X23 . -0.560 . . 0.315 dividend yield X14 . . 0.933 . . growth rate X18 . . . 0.871 . cash to cap inv / cash sales - 51 - VARIANCE EXPLAINED BY EACH FACTOR FACTOR1 FACTOR2 FACTOR3 FACTOR4 FACTOR5 4.378313 3.649694 3.240343 3.071599 2.625934 FACTOR6 FACTOR7 FACTOR8 FACTOR9 FACTOR10 2.096879 1.632641 1.501724 1.378910 1.248399 Cumulative Proportion of total variance FACTOR1 FACTOR2 FACTOR3 FACTOR4 FACTOR5 0.2661 0.4200 0.5305 0.6154 0.6803 FACTOR6 FACTOR7 FACTOR8 FACTOR9 FACTOR10 0.7402 0.7891 0.8282 0.8597 0.8866 FINAL COMMUNALITY ESTIMATES: TOTAL = 24.824436 X1 X2 X3 X4 X5 X6 X7 0.872644 0.894561 0.914550 0.900938 0.765444 0.942703 0.908289 X8 X9 X10 X11 X12 X13 X14 0.922396 0.921668 0.935987 0.928411 0.907007 0.877017 0.914587 X15 X16 X17 X18 X19 X20 X21 0.834947 0.930683 0.941563 0.843185 0.885844 0.935010 0.965654 X22 X23 X24 X25 X26 X27 X28 0.844763 0.876725 0.922139 0.748515 0.825211 0.850206 0.813790 - 52 - APPENDIX D: Varimax-rotated Factor Pattern for the Averages of the Ratios 1979-1984 FACT1 FACT2 FACT3 FACT4 FACT5 X12 0.912 . . . . labor intensiveness X6 0.817 0.365 . . . times interest earned X22 0.812 . . . . dividend payout ratio X3 0.688 . . . . net work. cap. to tot. ass. X4 -0.564 . -0.332 0.504 . total liabilities/sales X20 . 0.922 . . . cash netinc / int bear debt X16 -0.316 0.741 . . . cash net income / cash sales X21 0.580 0.739 . . . cash to inter / cash marg Ib X1 . 0.682 . . -0.430 quick ratio X7 . . 0.854 . . return on equity X24 . . 0.836 . . E/P-ratio X8 0.429 . 0.619 . . return on total assets X9 -0.355 . . 0.794 . operating margin X14 . . . 0.741 . growth rate X5 -0.377 . . 0.532 . long-term debt to equity X11 . . . . 0.906 acc. rec. turnover period X2 . . . . -0.868 defensive interval measure X10 . . . . . X17 . 0.509 . . . X19 . . . -0.408 . X25 . . . . . X13 . . . . 0.356 X27 . . 0.372 . . X15 . . . 0.340 . X26 . . 0.448 . -0.310 X23 . . . . . X28 . . . . . X18 . . . . . NOTE: VALUES LESS THAN 0.3 HAVE BEEN PRINTED AS '.' - 53 - FACT6 FACT7 FACT8 FACT9 FACT10 X12 . . . . . X6 . . . . . X22 . . . . -0.338 X3 . . . . . X4 . . . . . X20 . . . . . X16 0.303 . . . . X21 . . . . . X1 . . . . . X7 . . . . . X24 . . . . . X8 . . . 0.361 . X9 . . . . . X14 . . . . . X5 . . . 0.430 . X11 . . . . . X2 . . . . . X10 0.957 . . . . inventory turnover period X17 0.574 . . 0.436 . cash margin Ib / total ass. X19 -0.650 . . . . cash to mat & w / cash sales X25 . 0.794 . . . market to book ratio X13 . 0.752 . . . variable costs / fixed costs X27 . . 0.817 . . security's beta X15 . . 0.739 . . size X26 . . -0.578 -0.302 . return on the security X23 . . . 0.822 . dividend yield X28 . . . . 0.874 security's total risk X18 . -0.433 . . -0.600 cash to cap inv / cash sales NOTE: VALUES LESS THAN 0.3 HAVE BEEN PRINTED AS '.' - 54 - VARIANCE EXPLAINED BY EACH FACTOR FACTOR1 FACTOR2 FACTOR3 FACTOR4 FACTOR5 4.316926 3.367783 2.741719 2.475085 2.309695 FACTOR6 FACTOR7 FACTOR8 FACTOR9 FACTOR10 1.996683 1.995761 1.940643 1.815787 1.767355 Cumulative Proportion of total variance FACTOR1 FACTOR2 FACTOR3 FACTOR4 FACTOR5 0.2349 0.4115 0.5052 0.5891 0.6673 FACTOR6 FACTOR7 FACTOR8 FACTOR9 FACTOR10 0.7258 0.7803 0.8246 0.8580 0.8831 FINAL COMMUNALITY ESTIMATES: TOTAL = 24.727437 X1 X2 X3 X4 X5 X6 X7 0.905749 0.880392 0.846420 0.909287 0.818603 0.916645 0.940584 X8 X9 X10 X11 X12 X13 X14 0.844907 0.952743 0.952222 0.912810 0.903211 0.818652 0.888208 X15 X16 X17 X18 X19 X20 X21 0.836716 0.937781 0.915702 0.776996 0.874437 0.932460 0.950174 X22 X23 X24 X25 X26 X27 X28 0.888035 0.790788 0.849289 0.846701 0.863722 0.895879 0.878326 - 55 - APPENDIX E: Transformation Matrix 1974-78 to 1979-84 (L12) 1 2 3 4 5 1 0.185 0.077 0.905* -0.241 -0.156 2 -0.185 0.836* 0.074 0.046 0.187 3 0.874* 0.171 -0.059 0.095 0.127 4 0.080 0.121 -0.112 -0.344 0.106 5 -0.150 0.220 -0.006 0.023 -0.054 6 0.042 -0.161 0.070 -0.036 0.912* 7 0.052 0.362 -0.170 -0.062 -0.019 8 0.122 0.019 0.108 0.852* -0.075 9 0.131 0.196 -0.268 -0.101 -0.153 10 0.321 -0.081 -0.207 -0.264 -0.224 6 7 8 9 10 1 -0.019 0.007 0.008 -0.241 -0.026 2 0.390 0.103 -0.113 0.213 -0.062 3 -0.158 -0.143 0.073 0.348 -0.083 4 -0.434 0.743 -0.235 -0.019 0.202 5 -0.293 0.119 0.908* 0.003 -0.019 6 0.126 0.004 0.142 -0.313 -0.028 7 -0.262 -0.464 -0.090 -0.468 0.567 8 0.014 0.354 -0.047 -0.308 0.136 9 -0.052 0.018 -0.066 -0.563 -0.718 10 0.679 0.248 0.258 -0.217 0.302 - 57 - APPENDIX G: The Firms Included in the Sample TOL 31 Manufacture of Food, Beverages and Tobacco: Huhtamäki, Rettig, Suomen Sokeri TOL 32 Textile, Wearing Apparel and Leather Industries: Finlayson, Lassila & Tikanoja, Tamfelt, Suomen Trikoo TOL 34 Manufacture of Paper and Paper Products, Printing and Publishing: Enso-Gutzeit, Kajaani, Kaukas, Kemi, Kymi-Strömberg, Otava, Wilh. Schauman, G.A. Serlachius, Tampella, Yhtyneet Paperitehtaat TOL 36 Manufacture of Non-metallic Mineral Products, Except Products of Petroleum and Coal: Lohja, Partek TOL 38 Manufacture of Fabricated Metal Products, Machinery and Equipment: Fiskars, Instrumentarium, Nokia, Rauma-Repola, W. Rosenlew, Wärtsilä; TOL 61 Wholesale Trade: Ford, Kesko, Rake, Tamro, Talous-Osakekauppa TOL 62 Retail Trade: Stockmann TOL 71 Transport and Storage: Effoa
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