Advances in Decision Sciences / 2011 / Article / Tab 3

Research Article

Structural and Evolutionary Patterns of Companies in a Financial Distress Situation

Table 3

Financial ratios.

CategoryVariable nameVariable definition*

Reaction path Shareholders' equity/Total liabilities
Current assets/Current liabilities
Sales/Total assets

Economic and financial structure Net income/Total assets
EBIT/Total assets
Retained earnings/Total assets
Working capital/Total assets
Cash flow/Total assets
Operating cash flow/Total assets
Shareholders' equity/Total assets

Strength EBIT-interests (Yearn+1)
EBIT/Total assets (Yearn+1)

*Variables defined according to Compustat (Global) Data Guide. In order of appearance:
Shareholders’ Equity = This item represents common/ordinary and preferred/preference shareholders’ interest in the company and any reserves reported in the Shareholders’ Equity section.
Total liabilities = This item represents the total value of all items reported in the Liabilities section.
Current Assets = This item represents cash and assets expected to be realized in cash and used in the production of revenue during the next 1-year operating cycle.
Current Liabilities = This item represents debt and other liabilities due within one year.
Sales (Turnover) = This item represents gross sales reduced by cash discounts, trade discounts, returned sales, excise taxes, and value added taxes and allowances for which credit is given to customers.
Total Assets = This item represents the total value of assets reported on the Balance Sheet.
Net Income (Net Items) = This item represents all accounts reported after taxes that are not extraordinary exceptional items, discontinued operations, or minority interest.
Operating Income (EBIT) = (Earnings Before Interest and Taxes) This item represents the Pretax Income plus Interest Expense.
Retained Earnings = This item represents cumulative earnings of the company less total dividend distributions to Shareholders and amounts allocated to other reserves.
Working Capital = is the sum of Current assets less current liabilities.
Cash Flow = is the sum of income before extraordinary Items plus Depreciation and Amortization.
Operating Cash Flow (Operating Activities-Net Cash) = This item represents the change in cash from all items reported in the Operating Activities section on the Statement of Cash Flows.
Interests (Interest Expense) = This item represents the company’s gross periodic expense in securing long- and short-term debt.

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