Market Capitalization and Measures of Performance: an European Analysis.

DOI: 10.5176/2251-1997_AF17.41

Authors: Alain Devalle, Donatella Busso and Fabio Rizzato

Abstract:

The financial statements of companies whose securities are traded on financial markets are an important source of information for investors who, despite not relying solely on economic and financial data for their investment decisions (buying/selling/holding shares, lending money, etc.), cannot ignore the financial performance indicators presented in consolidated and annual financial statements. The aim of this paper is to ascertain whether there is a more relevant measure of financial performance in the consolidated financial statements prepared in accordance with IFRS by companies on the main European stock market indexes. The sample is made up of 180 groups listed on the five most important European Union Stock Exchanges (London, Paris, Frankfurt, Madrid and Milan). For each group analysed we collected five main measures of financial performance from the accounting information disclosed in the consolidated income statements for 2013: Revenue (Sales), Earning Before Interest, Taxes, Depreciation and Amortization (EBITDA), Earning Before Interest Taxes (EBIT), Income Before Taxation (EBT) and Net Income (NI). Thus, in total we analysed 900 items for the independent variables and 180 items for the dependent variable. In order to analyse date an OLS regression model was used. Results show that Sales, Net income and EBITDA are relevant

Keywords: IFRS, value relevance, performance.