Northern and southern Italian social cooperatives during the economic crisis: a multiple factor analysis

Abstract

A multiple factor analysis is developed to assess the differences in the economic performance and employment levels of social cooperatives in three main geographical areas: North, Central and South Italy, between 2008 and 2011. The results showed that despite the global economic and financial meltdown, the social cooperatives in these areas increased their overall turnover and total assets between 2008 and 2011. Furthermore, the employment data showed a positive trend during this period. The analysis also found that the prolonged crisis in 2010 and 2011 affected mainly the southern regions, where conjunctural factors exacerbated long-term structural deficiencies.

Appendix 1: Economic efficiency and capitalisation indexes

1.1 Turnover to operating costs

This index aims at understanding the relation between operating expenses and turnover from the business activity.

Situation 1 (≤1): the situation is not sustainable over the medium to long term, as the costs incurred by the cooperative exceed the turnover;

Situation 2 (>1, ≤1.2): the turnover is close to the costs incurred. This class identifies situations in which the cooperative is not able to cover other costs of an extraordinary nature, and financial matters or situations where there is no positive surplus to reinvest in the cooperative’s activity for further growth.

Situation 3 (>1.2, ≤1.4): situations in which the cooperative saves between 20 and 40 % of the turnover. This surplus could be eroded by the coverage of any extraordinary financial costs.

Situation 4 (>1.4): the cooperative saves more than 40 % of its turnover, thus, managing to generate a positive surplus to be used to cover financial costs and the financing of its activities.

1.2 Profit (loss) to turnover

This index measures the cooperative’s self-financing ability. It is not to be understood as an index to evaluate the cooperative’s economic performance, which can be analysed through a joint reading of the profit (loss) and the distribution of wealth to shareholders, through compensation for the services conferred, which vary depending on the sector.

Situation 1 (≤−0.06): cooperatives without economic equilibrium. This type of cooperative reaches its institutional aim through the depletion of its resources, distributing more resources to shareholders than it has available. This situation can result from conditions of internal inefficiency or more correctly, from an incorrect perception of the cooperative’s goals, with an imbalance in institutional purpose at the expense of economic and financial equilibrium.

Situation 2 (>−0.06; ≤0): denotes a slight economic imbalance, sustainable over the short to medium term, but it requires a high degree of attention.

Situation 3 (>0 ≤0.06): probably the most balanced. The cooperative is in equilibrium. The slightly positive operating result may indicate a company’s ability to remunerate its members, or the community for a social cooperative, while strengthening its equity capital.

Situation 4 (>0.06): may at first appear positive but, in reality, may denote a condition of overall ineffectiveness in the company. In other words, in this situation, just as there might be in the first, there is an incorrect perception of the cooperative’s goals, with one stakeholder (in this case, the company itself) prevailing over the other. In this situation, however, the cooperative may be unable to achieve its institutional goal, despite having the economic resources to do so. Therefore, it may move towards a path of decline because of an inability to adequately meet the expectations of shareholders and the community. This is a typical situation representing strategic weakness. However, there are certainly a number of specific situations in which these levels can be considered ideal, especially when, through careful planning, the cooperative aims to increase its equity capital, distributing less wealth to stakeholders, to support a more balanced investment plan.

1.3 Equity to total assets

This index is an indicator of capitalisation. It indicates the extent to which the total assets are covered by equity.

Situation 1 (≤0): negative or non-existent equity. This is a negative and even dangerous situation, regardless of any consideration of the phase of the life cycle, as the cooperative is completely without equity or has a negative net worth, and the debts exceed the value of the total assets.

Situation 2 (>0 ≤0.15): equity is non-existent or very small, compared to total assets. This situation is slightly better than the previous one, but must still be resolved through increased earnings retention for some exercises.

Situation 3 (>0.15; ≤0.35): equity is highly present in the sources of funding.

Situation 4 (>0.35): a highly capitalised company, with a level of funds that can exceed that of the third parties.

For levels 3 and 4, it is necessary to assess the degree of equity in accordance with the actual need for loans, with these characteristics. Often, studies on cooperation are based on the assumption that cooperatives are undercapitalised, but this judgement cannot be separated from the actual need for stable sources of funding. Cooperatives with very elastic structures in terms of total assets, without the expectation of an increase in property, can be safely placed in level 3, leaving level 4 to those cooperatives with more rigid total asset structures or to those that are about to start investment plans.

1.4 Fixed assets to total assets

This is an index of the rigidity of total assets. It is clearly not possible to determine a priori threshold values with which to make a judgement on a balance sheet, as this indicator is closely related to the specificities of the sector and the company’s organisational structure.

The thresholds that are identified only serve to summarise the characteristics of the structure.

Situation 1 (≤0.06): total assets are very elastic, with no significant fixed assets, and therefore, they primarily consist of current assets.

Situation 2 (>0.06, ≤0.22): capital is still very elastic, with a strong prevalence of current assets.

Situation 3 (>0.2, ≤0.45): quite rigid invested capital, with fixed assets representing a major share of the total assets.

Situation 4 (>0.45): rigid total assets, with a prevalence of fixed capital.

These situations are certainly influenced by the sector of activity, organisational structure and corporate policies, and partly also by the cooperative’s life phase. A cooperative in the start-up phase often shows strong rigidity in terms of its total assets, which are often very modest in absolute terms because, in the face of substantial inconsistencies in current assets, there are investments and capitalised costs that are typical of the constitution, which then clearly affect the structure of the total assets.