Dependence of ROS on financial indicators using threshold regression models
Dependence of ROS on financial indicators using threshold regression models

Summary/Abstract: Research background: The modern economy is characterized by extreme complexity, and in today's global world it is challenging to ensure financial stability and increase financial performance. Every enterprise tries to increase its financial performance and competitiveness. It therefore seems appropriate to look for applicable models, that can increase financial performance and competitiveness of companies. Purpose of the article: The paper deals with modelling the relationship between financial indicator of profitability and financial indicators of activity, liquidity, and indebtedness. The aim of this article is to analyse the dependence of financial indicator of profitability (return of sales - ROS) on financial indicators of activity (turnover of assets – TA), indebtedness (total indebtedness - TI, financial leverage – FL), and liquidity (net working capital to assets ratio - NWC/A) of companies in the electrical engineering industry of the Slovak Republic. Methods: The analysis was carried out using the financial indicators of 2,947 companies for the period 2017-2019. Statistica and Stata programs were used to analyse input data and develop threshold regression models. Input data analysis was performed using Kernel density estimation - Epanechnikov. Threshold regression models will be used for dependency analysis, where the threshold variables will be successively the indicators TA, TI, FL, NWC/A. Findings & Value added: Knowing the relationship between financial indicator of profitability and financial indicators of activity, liquidity, and indebtedness enables more efficient business management. Knowing the coefficients and threshold values for individual industries can be used to optimize the company's debt policy in the relevant industry. The constructed models can be a starting point to improve financial health, prosperity, and competitiveness of analysed businesses. Our analysis is an important prerequisite for developing a realistic financial plan for companies operating in the electrical engineering industry in the Slovak Republic.

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