The impact of financial performance on the profitability of advertising agencies in the Slovak Republic

Abstract

Background: To improve operational and financial policies regarding the allocation of existing and obtaining new resources, strategic decision-making, managers use indicators of financial performance. Purpose: The aim of this study is to analyze the impact of financial performance on the profitability of advertising agencies in Slovakia. Study design/methodology/approach: A sample of 88 Slovak advertising agencies was analyzed by means of regression modeling the data based on financial statements of the financial year 2020. The hypothesis that the indicators of financial performance of advertising agencies in Slovakia have an impact on their profitability is partly confirmed by the results of this research. The first proposed model was adjusted by excluding the independent variable Current Ratio, which allowed us to build the second model to explain 95.21% of the Return on Assets deviation due to the variation of the selected independent variables. Findings/conclusions: By selecting Return on Assets as a dependent variable that characterizes the financial performance of advertising agencies, research has shown that Total Assets Turnover and Firm Size have significant positive influence on it, but Debt to Equity Ratio has a negative influence. This empirically testifies the expediency of financing the activities of advertising agencies from debt resources, scaling the scope of their activities and increasing sales using innovative approaches for getting more customers. Limitations/future research: The study limitations relate to completeness of information and availability of open access to the necessary data in the published financial statements of Slovak advertising agencies. The results of this research could be applicable and beneficial for providers of capital for advertising agencies. It could be also used as a tool to determine key factors of profitability and to adjust companies' financial and operational policies.

Capital Structure and Corporate Performance: An Empirical Analysis from Central Europe

“…On the other hand, the current ratio has a positive impact on the profitability of assets, unlike Wieczorek-Kosmala et al (2021) [40] except for one of the four models and Vuković et al (2022) [43]. Other indicators, such as company size calculated as the natural logarithm of total assets and long-term debt ratio, do not have a statistically significant impact on company performance, unlike Vuković et al (2022) [43], Lehenchuk et al (2022) [44] or Wieczorek-Kosmala et al (2021) [40]. Tangibility does not differ from other models; this coefficient reduces business performance similar to other sectors, such as agriculture and energy, according to Vuković et al (2022) [43] and Wieczorek-Kosmala et al (2021) [40].…”

“…In addition, the current ratio provides different findings because the impact is not clearcut since the coefficient is sometimes negative and sometimes positive. Furthermore, TL/TE has a negative statistically significant impact on business performance, according to Lehenchuk et al (2022) [44]; however, the regression coefficient is very low. On the other hand, Vuković et al (2022) [43] did not find a relationship between return on assets and TL/TE; however, TS/TA has a significant positive impact on the possible increase in business performance according to Lehenchuk et al (2022) [44], but also one of the three models from Wieczorek-Kosmala et al (2021) [40].…”

“…In other words, these models estimate that current assets are an important pillar in managing business performance. Other indicators such as CA/CL, TL/TE, or TS/TA differ in their impact on business performance because the current ratio (CA/CL) is a statistically significant variable according to Vuković et al (2022) [43], Wieczorek-Kosmala et al (2021) [40], unlike Lehenchuk et al (2022) [44]. In addition, the current ratio provides different findings because the impact is not clearcut since the coefficient is sometimes negative and sometimes positive.…”

“…Secondly, non-current assets to total assets also have a negative impact on corporate performance, according to Spitsin et al (2021) [29], Vătavu (2015) [33], and Vuković et al (2022) [43]. Thirdly, corporate size according to the natural logarithm of total assets and its impact on corporate performance is not unambiguous because García-Gómez et al (2021) [24], Vuković et al (2022) [43], Lehenchuk et al (2022) [44], and Wieczorek-Kosmala et al (2021) [40] found a positive impact on business performance in contrast to Nenu et al (2018) [31]. Fourthly, cash and cash equivalent to total assets have a positive impact on business performance, according to Nenu et al (2018) [31], in contrast to García-Gómez et al (2021) [24].…”

Advances in machine learning for the innovation economy: in the shadow of war

“…The paper "The impact of intangible assets on the financial performance of Slovak ICT companies: a panel data regression analysis" by Serhii F. Lehenchuk, Tetiana A. Vakaliuk, Tetiana P. Nazarenko, Zuzana Kubaščíková, and Zuzana Juhászová [42] investigates the impact of intangible assets on the financial performance of Slovak ICT companies in the context of the knowledge economy.…”