The Economic Competitiveness of Central African Rep: Financials Returns, Labor Productivity and International Gaps
Published By: Icon Group International, Inc.
May 2002
R307-18572
Online Download $210.00
Global Site License $315.00
Description
Is Central African Rep competitive? With the globalization of markets, the increased mobility of corporate assets, and the need for productive human resources, this question has become all the more complex to answer. This report was prepared to tackle this question by focussing on certain fundamentals: financial performance and labor productivity.
In the former case, we are essentially interested in the degree to which firms operating in Central African Rep have fundamentally different financial structures and performance compared to firms located elsewhere. With respect to this view of competitiveness, if one were to invest or operate in Central African Rep, how would the firm's asset structure likely vary compared to a firm operating in some other country in Africa or average location in the world? In Central African Rep, do firms typically hold more cash and other short term assets, or do they concentrate their assets in physical plant and equipment? On the liability side, do firms operating in Central African Rep have a higher percent of payables compared to other firms operating in Africa, or do they hold a higher concentration of long term debt? The structure of the income statement is also telling. Do firms operating in Central African Rep have relatively higher costs of goods sold, operating costs, or income taxes compared to firms located elsewhere in the region or the world in general? Are returns on equity higher in Central African Rep? Are profit margins greater? Are inventories held longer? Chapters 2, 3, 4 and 5 are designed to answer these and similar questions that naturally affect one's decision to invest or operate in Central African Rep.
In many instances, people make all the difference. In addition to financial competitiveness, this report considers the extent to which labor deployment and productivity in Central African Rep differs from regional and global benchmarks. In this case, we are interested in the amount of labor required to operate a typical business in Central African Rep and the likely returns on this human investment. What is the typical ratio of short-term and long-term assets to employee? What are typical capital-labor ratios? How different are these ratios to those in Africa in general and the world as a whole? What are the average sales and net profits per employee in Central African Rep compared to regional benchmarks? Again, these and over 50 other measures of labor productivity are considered in Chapters 6, 7, and 8.
Excerpt: The approach used in this report to evaluate the competitiveness of Central African Rep is called "vertical analysis." For those unfamiliar with this type of analysis, frequently taught in graduate schools of business, the reader is recommended Jae K. Shim and Joel G. Siegel's recent book titled Financial Management. In their discussion of financial statement analysis and ratios, Skim and Siegel (p. 42-43), describe common-size statement (vertical analysis) as follows:
A common-size statement is one that shows each item in percentage terms. Preparation of common-size statements is known as vertical analysis, in which a material financial statement item is used as a base value and all other accounts on the financial statement are compared to it. In the balance sheet, for example, total assets equal 100 percent, and each individual asset is stated as a percentage of total assets. Similarly, total liabilities and stockholders' equity are assigned a value of 100 percent and each liability or equity account is then stated as a percentage of total liabilities and stockholders' equity, respectively. … For the income statement, a value of 100 percent is assigned to net sales, and all other revenues and expense accounts are related to it. It is possible to see at a glance how each dollar of sales is distributed among various costs, expenses, and profits.
The authors suggest that vertical analyses involve industry-based comparisons. Such a comparison "allows you to answer the question, 'How does a business fare in the industry?' You must compare the company's ratios to… industry norms." (p. 43-44) This approach is extended to country competitiveness. This involves calculating country, regional and global norms. In what follows, this introduction will describe the six-stage methodology used to perform this analysis. Each stage should be seen as a working assumption behind the numbers presented in later chapters.
Stage 1. Firm-level Data Collection. A global search is conducted across over 20,000 companies in over 40 major economies, including Central African Rep, for those that report financials (balance sheet and income statements). It should be noted that the public-domain financials can be either historic or projections. It should also be noted that even historic figures can be modified in the future and often represent "estimates" of performance. In some countries, firms must disclose financials in official periodic reports (e.g. annular reports, 10Ks, etc.) to public authorities (such as the Securities and Exchange Commission). These reports are then open for public scrutiny (e.g. EDGAR filings). In other cases, commercial data vendors or private research firms provide financials for specific companies. These include:
· Bloomberg - www.bloomberg.com
· Datastream (Thomson Financial) - www.datastream.com
· Dun & Bradstreet - www.dnb.com
· Hoovers - www.hoovers.com
· HarrisInfoSource - www.HarrisInfo.com
· InfoUSA - www.infousa.com
· Investext (Thomson Financial) - www.investext.com
· Kompass International Neuenschwander SA. - www.kompass.com
· Moody's Investors Service - www.moodys.com
· Primark (Thomson Financial) - www.primark.com
· Profound (The Dialog Corporation - A Thomson Company) - www.profound.com
· Reuters - www.reuters.com
· Standard & Poor's - www.standardandpoors.com
Stage 2. Standardization. Once collected, public domain financial figures of firms identified in Stage 1 are standardize into comparable categories (assets, liabilities, and income). From there, we eliminate all currency effects by standardizing within each category (creating ratios). In order to maintain comparability over time and across countries, vertical analysis is used. In the case of a firm's assets, I treat the total assets as equaling 100, irrespective of the value of the local currency. All other assets are then calculated as a percent of total assets. In this way, the structure of the firm's assets can be easily interpreted and compared with international benchmarks. For liabilities, total liabilities and equity are indexed to equal to 100. For the income statement, total revenue is indexed to equal 100, and all other figures are calculated as a percent of these figures.
Stage 3. Filtering. Not all the firms selected in Stage 1 or the ratios calculated in Stage 2 are used for the country, regional or global benchmarks, as a number of companies are purposely dropped from the analysis. This is justified by the "outlier" phenomenon that plagues such analysis. The problem lies in that any given company in the benchmarking pool may be facing some exceptional event or may be organized in an exceptional way so as to make its ratios vastly different from the norm. By including such firms, the global benchmarks can be overly skewed. In many countries, firms are organized into holding groups. These groups nominally have very few employees (e.g. 4 to 25 employees), but have extremely large assets, liabilities, or revenues. As such, the inclusion or exclusion of firms having this form of management can affect the ratios and benchmarks reported. Likewise, some firms have no net sales, no assets, no liabilities, or ratios. Others have ratios that appear implausible for a normal or viable company. In order to not allow these firms to affect the global benchmarks, only those firms with reasonable financials have been chosen. Finally, in some countries, detailed financials are not available or are not comparable to either the company in question or the global norm (e.g. various forms of depreciation). In this case, only those which exist and are comparable are reported. The details, therefore, that comprise a given ratio or set of ratios may not be reported. This may lead to the addition of several ratios, not summing to the whole.
Stage 4. Calculation of Global Norms. Once the filtering process has eliminated outliers, a final list of companies included is compiled. Based on this list, the ratios discussed in Stage 2 are calculated for every firm, and then averaged to create country, regional and global benchmarks. The world average is calculated using each country's population as a weight.
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Table of Contents
1 INTRODUCTION & METHODOLOGY
1.1 Financial Returns and Gaps: Methodology
1.2 Labor Productivity Gaps: Methodology
1.3 Limitations and Extensions
1.4 Related Reports
2 FINANCIAL RETURNS: ASSET STRUCTURE RATIOS
2.1 Overview
2.2 Assets - Definitions of Terms
2.3 Asset Structure: Outlook
2.4 Asset Structure: International Gaps
2.5 Key Percentiles and Rankings
3 FINANCIAL RETURNS: LIABILITY STRUCTURE RATIOS
3.1 Overview
3.2 Liabilities and Equity - Definitions of Terms
3.3 Liability Structure: Outlook
3.4 Liability and Equity Structure: International Gaps
3.5 Key Percentiles and Rankings
4 FINANCIAL RETURNS: INCOME STRUCTURE RATIOS
4.1 Overview
4.2 Income Statements - Definitions of Terms
4.3 Income Structure: Outlook
4.4 Income Structure: Gaps
4.5 Key Percentiles and Rankings
5 FINANCIAL RETURNS: PROFITABILITY RATIOS
5.1 Overview
5.2 Ratios - Definitions of Terms
5.3 Ratio Structure: Outlook
5.4 Return Ratios Structures: Gaps
5.5 Key Percentiles and Rankings
6 PRODUCTIVITY: ASSET-LABOR RATIOS
6.1 Overview
6.2 Asset to Labor: Outlook
6.3 Asset to Labor: International Gaps
6.4 Key Percentiles and Rankings
7 PRODUCTIVITY: LIABILITY-LABOR RATIOS
7.1 Overview
7.2 Liability to Labor: Outlook
7.3 Liability and Equity to Labor: International Gaps
7.4 Key Percentiles and Rankings
8 PRODUCTIVITY: INCOME-LABOR RATIOS
8.1 Overview
8.2 Income to Labor: Outlook
8.3 Income to Labor: Gaps
8.4 Key Percentiles and Rankings
9 DISCLAIMERS, WARRANTEES, AND USER AGREEMENT PROVISIONS
9.1 Disclaimers & Safe Harbor
9.2 ICON Group Ltd. User Agreement Provisions
9.3 Financial Glossaries: Bibliography
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