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The 2011 floods’ impact on the Thai industrial estates’ financial stability: a ratio analysis with policy recommendations

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Abstract

This paper employs ratio analysis to investigate the financial stability of companies located in seven of Thailand’s industrial estates following the 2011 floods. Those seven industrial estates contain 651 companies. Ranked by size, they are: (1) Rojana; (2) Navanakorn; (3) Hi-Tech; (4) Bang Pa-in; (5) Factory Land; (6) Saharattananakhon; and (7) Bangkadi Industrial Estates. All of them were hit particularly hard by flooding in 2011. After omitting 75 companies that failed to report their financial statements, 43 companies that closed down after the floods, and 19 companies that first registered businesses after 2011, 514 companies (78.96% of the total number of companies on the 7 industrial estates) were selected and included in this study. Its objective is to investigate the financial stability of those companies after the floods and to see how quickly they were able to recover from the disaster. The sample’s financial data were divided into two different periods: the flood year (2011) and post-flood years (2012–2015). After reviewing commonly used indicators, 12 financial ratios were selected to measure changes in the companies’ post-flood financial position. We tested the normality of the data and decided to employ a nonparametric independent test at 90%, 95%, and 99% confidence intervals. To our surprise, the key finding of this paper is that the leverage and, to a certain extent, the liquidity of the affected companies did not constitute issues for them. Their current ratios and working capital ratios looked fine statistically. However, due to the cessation of production during the flooding, they lacked deliverable inventories. As a result, these companies faced inventory and accounts receivable problems. The historic floods also affected the profitability of the companies, making 2011 the year with the markedly lowest profitability during the 2011–2015 period.

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Acknowledgements

The authors are grateful for the constructive comments of participants at the Asia-Pacific Management Accounting Association (APMAA), Shanghai, 2017, and the anonymous reviewers for their valuable comments on earlier drafts of this paper. The authors also wish to thank Associate Professor Dr. Seri Supharatid, Director of Climate Change and Disaster Centre of Rangsit University, Thailand, who supervised the research design and data collection. Furthermore, they acknowledge with gratitude funding support, the grant number MRG5980138, from the Thailand Research Fund (TRF) and the Office of Higher Education Commission, Thailand.

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Authors and Affiliations

  1. Rangsit University, Pathumthani, 52/347, Muang-Ake Phaholyothin Road, Lak-Hok, Muang Pathum Thani, 12000, Thailand

    Kanitsorn Terdpaopong

  2. German Police University, Münster, Germany

    Robert C. Rickards

  3. Rajamangala University of Technology Suvarnabhumi, 60 Moo 3 Asian Highway, Phranakhon Si Ayutthaya, 13000, Thailand

    Penprapak Manapreechadeelert

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  1. Kanitsorn Terdpaopong
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  2. Robert C. Rickards
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Correspondence to Kanitsorn Terdpaopong.

Appendix 1: Summary of 25 ratios researchers commonly use

Appendix 1: Summary of 25 ratios researchers commonly use

No.

Variables

Used by

Liquidity ratios

 

 1.

CR

Current ratio or current assets/current liabilities

Beaver (1966), Ohlson (1980), Mark (1984), Osteryoung et al. (1992), Samad and Hassan (1999), Feng and Wang (2000), Mertens et al. (2008), Lin et al. (2011), Terdpaopong and Mihret (2011), Delen et al. (2013), Terdpaopong and Hovey (2013), Ahmad (2016), Cultrera and Brédart (2016), Demerjian and Owens (2016), Lakshmi et al. (2016), Sharma and Kaur (2016), Nadya and Isrochmani (2017) and Shaonan and Yan (2017)

 2.

ART

Accounts receivable turnover ratio or total revenue/average account receivables

Rai et al. (1997), Lin et al. (2011), Osteryoung et al. (1992), Delen et al. (2013), Wei et al. (2014), Almamy et al. (2016), Cultrera and Brédart (2016), Rao (2016), Ali and Umer (2017), Karnawi (2017) and Shaonan and Yan (2017)

 3.

INV

Inventory turnover ratio or cost of goods sold/average inventory

Osteryoung et al. (1992), Padachi (2006), Delen et al. (2013), Wei et al. (2014), Sharma and Kaur (2016), Lakshmi et al. (2016), Rao (2016), Ali and Umer (2017), Karnawi (2017) and Shaonan and Yan (2017)

 4.

WCA

Working capital/total asset

Beaver (1966), Altman (1968), Ohlson (1980), Osteryoung et al. (1992), Lin et al. (2011), Terdpaopong and Mihret (2011), Delen et al. (2013), Wei et al. (2014), Almamy et al. (2016), Cultrera and Brédart (2016), Lakshmi et al. (2016) and Sharma and Kaur (2016) and Shaonan and Yan (2017)

 5.

CA

Current asset ratio or current assets/total assets

Deakin (1972), Osteryoung et al. (1992), Terdpaopong and Mihret (2011), Lin et al. (2011), Wei et al. (2014) and Shaonan and Yan (2017)

 6.

QAS

Quick asset/sales

Deakin (1972), Osteryoung et al. (1992), Lin et al. (2011), Wei et al. (2014) and Shaonan and Yan (2017)

 7.

QAA

Quick asset/total assets

Deakin (1972), Osteryoung et al. (1992), Delen et al. (2013), Wei et al. (2014), Ahmad (2016), Kiser et al. (2016), Laitinen and Suvas (2016) and Shaonan and Yan (2017)

 8.

WCS

Working capital/sales

Beaver (1966), Deakin (1972), Osteryoung et al. (1992) and Ohlson (1980)

 9.

CLTL

Current liabilities/total liabilities

Feng and Wang (2000), Joshua (2007), Pathak (2011), Mian et al. (2012), Salim and Yadav (2012), Jonchi (2013), Muhammad and Ammar (2013), Nadeem and Zongjun (2013), Stewart (2014) and Wei et al. (2014)

 10.

CLS

Current liabilities/sales

Deakin (1972), Osteryoung et al. (1992), Lin et al. (2011), Wei et al. (2014) and Shaonan and Yan (2017)

 11.

CFS

Cash flow/sales

Deakin (1972), Kim and Kross (2005), Lorek and Willinger (2009) and (Shaonan and Yan 2017)

 12.

CFD

Cash flow/total debt

Beaver (1966), Deakin (1972), Blum (1974), (Mark 1984), (Mertens et al. 2008), Lin et al. (2011), Delen et al. (2013), Kiser et al. (2016) and Shaonan and Yan (2017)

 13.

CFA

Cash flow/total assets

Deakin (1972), Ohlson (1980), Samad and Hassan (1999), Lin et al. (2011); Delen et al. (2013), Wei et al. (2014) and Shaonan and Yan (2017)

Profitability ratios

 14.

GPM

Gross profit margin ratio or gross profit/total revenue

Samad and Hassan (1999), Feng and Wang (2000), Delen et al. (2013), Monica (2014), Ahmad (2016), Kanagaretnam et al. (2016), Ali and Umer (2017), Karnawi (2017), Rao (2016) and Shaonan and Yan (2017)

 15.

OPM

Operating profit margin ratio or operating profit margin/total revenue

Rai et al. (1997), Feng and Wang (2000), Monica (2014), Delen et al. (2013), Ahmad (2016), Ali and Umer (2017), Karnawi (2017), Rao (2016) and Shaonan and Yan (2017)

 16.

NPM or EAITR

Net profit margin ratio or earnings after interest and tax expenses/total revenue

Rai et al. (1997), Samad and Hassan (1999), Ohlson (1980), Feng and Wang (2000), Lin et al. (2011), Kabajeh et al. (2012), Delen et al. (2013), Monica (2014), Ali and Umer (2017), Rao (2016), Karnawi (2017), Shaonan and Yan (2017)

 17.

ROE

Return on equity ratio or net income/total equity

Rai et al. (1997), Samad and Hassan (1999), Kabajeh et al. (2012), Umar et al. (2012), Delen et al. (2013), Velnampy (2013), Warusawitharana (2013), Irina and Elvira (2014), Sakina and Agatha (2015), Ahmad (2016), Lakshmi et al. (2016), Sharma and Kaur (2016), Ali and Umer (2017), Karnawi (2017) and Shaonan and Yan (2017)

 18.

EBITA

Earnings before interest and taxes/total assets

Altman (1968), Lin et al. (2011), Terdpaopong and Mihret (2011), Terdpaopong and Hovey (2013), Wei et al. (2014), Almamy et al. (2016) and Shaonan and Yan (2017)

Efficiency ratios

 19.

ROA

Return on assets ratio or net income/total assets

Beaver (1966), Deakin (1972), Ohlson (1980), Mark (1984), Padachi (2006), Terdpaopong and Mihret (2011), Kabajeh et al. (2012), Delen et al. (2013), Rai et al. (1997), Terdpaopong and Hovey (2013), Velnampy (2013), Ahmad (2016), Laitinen and Suvas (2016), Al-Qaisi (2016), Cultrera and Brédart (2016), Mwizarubi et al. (2016), Rao (2016), Nadya and Isrochmani (2017) and Shaonan and Yan (2017)

 20.

TAT

Total asset turnover ratio or total revenue/average assets

Altman (1968), Rai et al. (1997), Lin et al. (2011), Terdpaopong and Mihret (2011), Delen et al. (2013), Terdpaopong and Hovey (2013), Almamy et al. (2016), Lakshmi et al. (2016), Osteryoung et al. (1992), Delen et al. (2013), Rao (2016), Almamy et al. (2016) and Shaonan and Yan (2017)

 21.

REA

Retained earnings/total assets

Altman (1968), Ding et al. (2008), Lin et al. (2011), Wei et al. (2014), Almamy et al. (2016), Lakshmi et al. (2016), Shaonan and Yan (2017)

 22.

MVD

Market value equity/total debt

Altman (1968), Mertens et al. (2008), Lin et al. (2011), Almamy et al. (2016)

 23.

INTC

Interest coverage ratio or operating revenue/interest expense

Feng and Wang (2000), Wei et al. (2014), Cultrera and Brédart (2016)

Leverage ratios

 24.

DE

Debt/equity ratio or debt-to-equity ratio

Beaver (1966), Deakin (1972), Ohlson (1980), Samad and Hassan (1999), Feng and Wang (2000), Aivazian et al. (2005), Ahn et al. (2006), Yuan (2006), Ding et al. (2008), Mertens et al. (2008), Faris (2012), Terdpaopong and Hovey (2013), Zhuo et al. (2015), Shaonan and Yan (2017)

 25.

DA

Debt ratio or debt-to-asset ratio

Beaver (1966), Deakin (1972), Ohlson (1980), Samad and Hassan (1999), Feng and Wang (2000), Aivazian et al. (2005), Ahn et al. (2006), Yuan (2006), Ding et al. (2008), Mertens et al. (2008), Faris (2012), Terdpaopong and Hovey (2013), Zhuo et al. (2015), Shaonan and Yan (2017)

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Terdpaopong, K., Rickards, R.C. & Manapreechadeelert, P. The 2011 floods’ impact on the Thai industrial estates’ financial stability: a ratio analysis with policy recommendations. Environ Dev Sustain 22, 1991–2014 (2020). https://doi.org/10.1007/s10668-018-0274-0

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  • DOI: https://doi.org/10.1007/s10668-018-0274-0

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