Investigation on Family Businesses’ Performance:

Investigation on Family Businesses’ Performance:

The future trend in Thailand

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1.1       Background of the research


The family businesses (FBs) are an essential key for driving the global economy, including small, medium and large enterprises, as they can be found in everywhere around the world. Many researchers claim that there are a huge number of FBs which approximately 80 to 90 percent of all businesses in United Stated (Smyrnios et al., 1998; Poza, 2010), between 75 and 95 percent in Western Europe (Lank, 1995), 76 percent in United Kingdom (Stoy Hayward and the London Business School, 1990) and over 80 percent in Asia (Poza, 2010). According to Aitsaranukuldet and Sudharatna (2013), many companies start out with family operations such as Ford, Toyota, and Samsung. And when they become a large company, they decide to register on the stock market. This would change the ownership structure from a sole proprietor to be numerous shareholders. Even the company’s shares are held by various number of shareholders but many founders of FBs are still being a major shareholder. Therefore, when business goes into next generation, most of the descendants of business founder will become a significant role in ownership and board committee (Bertrand et al., 2008). The ownership succession is frequently done by transferring the common stock to the descendants of founder. The more descendants would impact to the smaller proportion of business ownership of each descendant. This lead to the lower of business performance when the business founder gone (Bertrand et al., 2008). And they mention that the higher number of descendants of business founder will lead to the higher excess control which resulting in the lower business performance. According to the statistic, there are approximately between 30 to 40 percent of all the businesses were carried on for two generations and 15 to 18 percent were carried on for three generations which illustrate that many businesses have been devolved for a long time (Ward, 2004; Chaimahawong and Sakulsriprasert, 2013).


According to Chaimahawong and Sakulsriprasert (2013); Poza (2010), there are a large number of listed companies around the world are family-owned and family-controlled enterprises. Therefore, the financial performance of FBs will reflect to the country’s and world’s economic. A good financial performance of FBs would make the overall economy better and more efficiency. Conversely, if the financial performance of FBs is poor, the overall economy would definitely get worse. Likewise, Thai economy has been injured by the East Asian Financial crisis in 1997, which leading to the collapse of many Thai FBs and loss on political influence (Suehiro and Wailerdsak, 2004). For example, some of the most prosperous FBs in Thailand have been extinct after the 1997 crisis, the Bangkok Metropolitan Bank group which governed by the Tejapaibul family and the Nakornthon Bank group which owned by the Wrangler family. Barro (2001) claims that the financial crisis in 1997 has reduced the economic growth in east Asia for 5 years at 3% each year. However, Thai FBs are gradually being revived and becoming a significant role of Thai economy again as between 70 to 80 percent of listed companies in Thailand are FBs (Ministry of Industry, 2016) and more than 65 percent in the Stock Exchange of Thailand which market value up to 2.35 trillion baht (Aitsaranukuldet and Sudharatna, 2013).


The study of FBs’ performance has become an interest of researcher because one of the most important factor that lead to the collapse of many FBs in 1997 is the weakness of business foundations and management. Some researchers claim that the corporate governance is another major cause that lead to the East Asian Financial crisis in 1997 (Mahathanaseth and Tauer, 2014). Many companies were survived during the financial crisis as their companies have a strong foundations, management and corporate governance. However, Mitton (2002) said that the East Asian Financial crisis did not triggered by weak corporate governance. But weak corporate governance makes the company more risk and more drastic when the financial crisis happened. A good governance makes the business performance more effective and make them live longer and grow quickly (Neubauer and Lank, 2016). Thus, this research paper purposes to learn the performance of Thai FBs over the past 5 years in order to predict the future business trend and in order to be aware of the risk of another financial crisis.


1.2       Scope and objectives


According to the Stock Exchange of Thailand (2017), there are 524 listed companies that registered in the Stock Exchange of Thailand (SET). It is approximately 80 percent of all enterprises in Thailand are owned or controlled by family (Ministry of Industry, 2016; Sirijanusorn, n.d.). Therefore, the scope of this research is to investigate the performance of FBs in Thailand by using the Financial Statement Analysis (FSA) technique. The researcher is selecting the FSA technique as an analysis method because the findings will cover in all aspects of business performance. According to Sinha (2012), the FSA is applied to evaluate and interpret the financial statements which could help users to understand the business performance more clearly. The FSA measures how well the company is performing. The FSA technique is a multidimensional analysis as it comprises of many financial ratios such as Profitability ratio, Liquidity ratio, Solvency ratio and Efficiency ratio (Reilly, 2016).


The number of sample population in this research is ten companies who registered in the SET and met the criteria of FB’s definition. And the research period is between 2012 and 2016. Therefore, these companies should be registered more than 5 years which their financial statements must be available between the period of 2012 and 2016. Because the data used in this research is mostly collected from the financial statements which are Statement of Financial Position, Statement of Profit or Loss and Statement of Cash Flows. Next, the aims of this research are to predict the future trend of FB’s performance by taking into account the past and present performance. First, the study will analyse Thai FBs’ performance and examine its financial performance over the past 5 years. Second, the research will assess what are the weakness area of family business? Finally, the study will illustrate the past 5 years’ trend of FBs’ performance and predict the possibility of future trend. The research questions are stated as follow:


  • What is the trend of family businesses’ performance in the past 5 years?
  • What are the weaknesses of Thai family businesses?
  • What is the future trend of family businesses’ performance?

1.3       Research hypothesis


To answer the research questions above, the researcher is testing the following hypothesises.




1.4       Overview


According to the research scope, the paper will contain a lot of information and discussion on the research topic. Therefore, the research is divided into five chapters. The first chapter is giving a background of the study, scope and aims and the overview. The second chapter is literature review which will discuss on the background of family business, financial statements, FSA technique and some previous researches on family business performance. Moreover, literature review will include the research hypothesis. The third chapter is research methodology which will discuss about the structure of the research and the research approach used in this paper. The research design also includes how the data has been selected, collected and analysed. Next, the data analysis and the findings of the research will show in chapter 4 which mainly discuss on the results of the analysis and explain its meaning. Finally, chapter 5 is a conclusion part which will summarize the overall research and the findings of the study and provide some suggestion of the future researches.






Literature Review


The aim of this chapter is to discuss the theoretical framework of research topic. It comprises of 5 main parts. The first part is discussing on the background of FBs including the definition and its characteristics. The second part is presenting a general information of financial statements which are necessary for analysing the business performance. The third part is discoursing on the Financial Statement Analysis (FSA) technique which are considered to be used in the study. Moreover, the forth part is showing some previous studies on the family business performance. Finally, the last part is summarizing the overall of the study.


2.1       Background of Family Business


Defining the family business is one of the most basic issue when doing a research on family business (Litz, 1995). The meaning of family business is diversified as there are many criteria to distinguish the FBs (Villalonga and Amit, 2006). Some researchers mentioned that FB is a business that the descendant of business founder will become a next generation or the business that current owner derived from their parent. As Beehr et al. (1997) stated that FB is also refer to the intention of business owner to transfer his or her ownership to other family members and with a minimum of one family member work in the company. Or some researchers said that FB is a business that intend to achieve the company’s vision which determined by family members (Chaimahawong and Sakulsriprasert, 2013). Next, the “Experts in the field use many different criteria to distinguish these businesses, such as percentage of ownership, strategic control, involvement of multiple generations, and the intention for the business to remain in the family.” (Astrachan and Shanker, 2003, p.211). Another researcher stated that a single family who directly influencing to the business is also refer to a FB. Furthermore, Poza found that there are 21 various definitions based on 250 research papers; “Family businesses come in many forms: sole proprietorships, partnerships, limited liability companies, S corporations, C corporations, holding companies, and even publicly traded, albeit family-controlled, companies.” (Poza, 2010, p.4). According to Allouche et al. (2008), there is no consensus on what a FB is. Therefore, defining the FB is depending on which criteria the FB is met. Even though many researchers described the FB in different ways, most of them prioritize on these three main characteristics (Villalonga and Amit, 2006; Litz, 1995; Allouche et al., 2008). First, the concentration of ownership is one of the most important factor to indicate whether the business is belonging to family or not (Smyrnios et al., 1998; Chaimahawong and Sakulsriprasert, 2013). The ownership proportion is often measured by the number of shareholdings. The family should hold at least 50 percent of the company’s common stock. However, Drake (2009) argue that family are holding more than 25 percent of all shares can be defined as a family business, if the remainder are holding a minority part of company. In addition, the majority shares of company may be held by many family members. Or sometime FB may be owned by more than one family because they could have a relationship between each other (Mazzi, 2011). For example, the owners who have the same grandparents, as known as relatives, are also holdings the significant part of company’s stocks (Westhead and Howorth, 2006). Even the spouse of owner who may not legally married and use their original surname. Second, the family has control over the business, as known as family-controlled firms. The family has a significant role in the shareholders’ meeting as they are holdings major voting stocks. So, it shows that the company is under control of the family. Third, the family-managed firm is a company that family members occupied top management position in the business. The involvement of family members is another important factor that make the business under managed of the family. For example, the family members are involving in business management, board participation, ownership control and strategic planning (Poza, 2010). This would make the business operations are under dominant of family. Hence, the business who has meet one of these criteria can be defined as a family business (Drake, 2009).


2.2       Financial Statements


The financial statements are a part of financial reports which emphasises on financial accounting. According to IFRS Foundation (2017), the financial report comprises of five statements which are Statement of Financial Position, Statement of Profit or Loss, Statement of Cash Flow, Statement of Change in Equity and Notes to financial statements (Elliott and Elliott, 2007). Most companies are needed to prepare the financial statements regarding to the legal. However, the difficulty of preparing the financial statements depends on the size of the company and its stakeholders. According to the IFRS, the companies are required to publish at least once a year. Because they need to show their financial data to third party who may useful such as current and potential shareholders, suppliers, creditors, employees and government (Greuning et al., 2011). The reason is to ensure that users can measure their financial performance and to make an investment decisions. Therefore, the financial statements play an important role in the analysing of business performance because it reveals the reality of business performance (Healy and Palepu, 2012).


2.3       Financial Statement Analysis Technique (FSA)


According to Feroz et al. (2003), the FSA is commonly used for evaluating the business performance. The analysis of business performance is also referring to an evaluation of the business success. And the success of the businesses shows the economic prosperity and efficiency. However, the business succession is depending on many factors such as business characteristic, management, market and finance (Chittithaworn et al., 2011). Consequently, the FSA is popular and widely used to measure the business performance as it can measure in various aspects such as the profitability, liabilities management, the effective of assets employed and capital structure. Therefore, the following will describe a comprehensive framework of the FSA technique.


Generally, the FSA is one of the analysis method for business valuation (Fairfield and Yohn, 2001). The FSA can analyse the past and present business financial performance (Kothari, 2004; Healy and Palepu, 2012). The analysis is focused on the business capabilities. For instance, the ability to repay debts, the ability for business success and the ability of capital management (Barnes, 1987; Peterson and Fabozzi,1999). Moreover, Reilly (2016) said that the FSA is a step of translating the financial statements where a raw data is available in numeric form. The main purpose of FSA is to assess how effective the company performance is and to evaluate its sustainability. In the analysis process, many analysts use an industry average as a standard. The results above the average demonstrate that the performance of company is better than standard. Next, the FSA can be used to schedule the future plans such as the business operations, further investment and financing. Furthermore, the estimation of stock value is another reason that the FSA is famous among investors (Healy and Palepu, 2012). As it can be used to predict the future trend of business performance. According to Chen and Shimerda (1981), the financial ratios have an important role for analysing the business performance. As they stated that the financial ratio can imply whether the business is facing the financial crisis or not. Thus, analysts can predict before the declaration of bankruptcy in order to avoid a loss. In contrast, analysts are able to invest effectively if the company has a good financial performance. Obviously, the FSA consists of several financial ratios such as Profitability ratios, Liquidity ratios, Solvency ratios and Efficiency ratios. Each ratio is subdivided into many ratios which the meaning and the purpose of each ratio is totally different. Therefore, the following will discuss each ratio thoroughly.


2.3.1 Profitability ratios


The profitability ratios are a measurement tool of the company’s potentiality to generate profit and the company’s value (Lesakova, 2007; Jansen et al., 2012). The profit of a company is like the shareholders’ return. So, the higher return means the more investment worthiness of shareholders. As it measures the worthiness of investment, the ratios are popular and widely used among investors, analysts and creditors. It consists of several assessments such as Profit Margins, Return on Assets, Return on Equity and Return on Capital Employed.


Profit Margins are show of the profit rate that the company can generated by comparing to its sales. The purpose of profit margins is to evaluate the efficiency of company’s cost control (Fairfield and Yohn, 2001). And the profit margins make the profit comparison easier and more comfortable. Because we should not compare the business performance by only the profit amount but the profit ratio to the net sales as well. Moreover, the profit margins are comprised of four levels which are gross profit, operating profit, pre-tax profit and net profit. Figure 2.1 illustrates the formulas of all profit margins levels.


Figure 2.1: Profit margins






Gross Profit margin is the first level of profit which the company’s net sales was subtracted from the production cost (cost of goods sold), for instance, raw materials, labor cost and overhead cost. However, some companies are not had a production cost such as retailers so instead of production cost will be replaced by cost of merchandise.

Operating Profit margin is the second level of profit which deducting the operating expenses from gross profit. The operating expenses is only included the direct expenses such as selling, general and administrative expenses. The direct expenses mean the costs that related to the main operations of the company such as employee salaries, office rental expense and depreciation.

Pre-tax Profit margin is the third level of profit which are earnings after deducting all operating expenses but before taxes. Pre-tax profit also known as EBIT, Earnings Before Interest and Taxes.

Net Profit margin is the final level of profit which normally stated at the bottom line of the Statement of Profit or Loss. The profit that after deducting interest and tax expenses.


Figure 2.2: Return on Assets




(Source: Olson and Zoubi, 2008).


Next, Return on Assets (ROA) is an indication of how effective the company using the assets to generate profit (Lesakova, 2007). The higher ratio mean the more effective of assets management and the more productivity of asset investing (McConaughy and Phillips, 1999; Heikal et al., 2014). The ratio is commonly shown as a percentage. However, the results may vary widely between capital-intensive businesses and non-capital-intensive businesses because the difference of asset required in order to operating the business.


Figure 2.3: Return on Equity




(Source: Olson and Zoubi, 2008).


Return on Equity (ROE) ratio is used to measure the company return to shareholders’ capital which usually shown as a percentage. As Heikal et al. (2014) has mentioned that the ROE measures how effective of investors’ capital is being employed. The higher percentage means the more return to shareholders and the more efficiency of capital management. However, analysts should concern the weakness of ROE ratio which the capital structure can affect to ROE result. For example, the company plans to decrease equity amount (denominator) by acquiring a long-term debt, so the ratio would become higher.


Figure 2.4: Return on Capital Employed





Return on Capital Employed (ROCE) is similar to ROE but more clearly and more comprehensive assessment. Because it measures the effectiveness of capital employed that including equity and debt. The result should be equal to or higher than the borrowing rate.


2.3.2 Liquidity ratios


The liquidity ratios measure the ability of short-term debts repayment. In other words, the analysis of liquidity is evaluating the effective of cash flow. The higher ratio means the greater turnover of current assets. A company should dominate current assets over current liabilities because it allows them to convert current assets into cash when they need to pay short-term debts and in emergency case. A low liquidity is a negative signal which known as “red flag”. The company with red flag has high probability to default payment on short-term debts.


Figure 2.5: Current ratio



The current ratio measure whether the company are able to pay short-term debt with its current assets or not. If the outcome is equal to or higher than 1, it shows that the value of current assets is higher than current liabilities which mean the company is able to repay short-term debts by the current assets. But if lower than 1, the value of current assets is lower than current liabilities then the company may unable to repay short-term debt in time which may lead to the financial issue. However, there are many kinds of current assets which turnover cycle varies. Therefore, analysts should understand how quickly those assets can be converted.


Figure 2.6: Quick ratio



The quick ratio is similar to current ratio but it emphasizes on the current assets that very high liquidity such as cash or equivalent, marketable securities and accounts receivables. This ratio investigates the company’s competence of converting the current assets into cash to pay debt in timely and immediately.


Figure 2.7: Operating Cash Flow ratio



The operating cash flow ratio is measure the efficiency of operating cash flow to coverage the short-term debts. It measures the amount of times that cash generated in that period can cover the short-term debts. The business earnings are totally different from actual cash flow cause the accrual basis of accounting policy. Thus, this ratio measures the ability to repay debts by actual cash flow. The high ratio demonstrates in good financial health.


2.3.3 Solvency ratios


Figure 2.8: Solvency ratio



The solvency ratio is used to evaluate the company’s capability of debts payment in short-term and long-term liabilities. The ratio is determining a long-term survival of business operation as it is a financial health measurement tool. The higher ratio indicates that the chance of business survival has increased because the greater ratio mean the more ability to meet financial obligations. The lower ratio, the more opportunity of company to default on debts payment.


2.3.4 Efficiency ratios


The efficiency ratios are important to the evaluation of business performance as it analyses the past and present performance of company about the usage of assets and liabilities. The main purpose of efficiency ratios is to explore the business activities cycles such as receivable turnover (how many days to collect cash), payable turnover (how many days to repay debts) and inventory turnover (how long does the company convert inventory to cash). The greater ratio means the more profitability and efficiency. Moreover, the ratio aims to measure the efficiency of assets used by company. The efficiency ratios are comprised of accounts receivable turnover and fixed asset turnover (Investopedia, n.d.).


Figure 2.9: Accounts Receivable Turnover ratio




The accounts receivable turnover measures the length of time from the credit sales to the collection date. The higher ratio shows that the business performance on credit management is better. Because most of credit sales are often charged without interest. And the inflation was incurred as the time passed. Therefore, the late of money collection was result in smaller value of money.


Figure 2.10: Fixed Asset Turnover



The fixed asset turnover measure of how much fixed assets can generate sales (Fairfield and Yohn, 2001). The higher ratio means the more effectiveness on fixed assets investment. However, the amount of fixed assets is extremely varied depending on the type of business. For example, service company may hold less fixed assets than manufacturing company. Therefore, the average ratio of each industry is totally different. The best way is to compare within its industry.


2.4       The previous research on family business performance


This part is discussing some previous studies on FB’s performance. Some researchers have claim that many FBs are successful in financial performance. The FBs can generate a better financial performance than non-family businesses (NFBs). However, some researchers argued that the FBs may have lower performance than NFBs as the ownership succession is negatively impacted to its performance. The following are the arguments of some previous research which study on family business performance.


According to Bakker (n.d.), the FBs have a better performance than NFBs as they can generate higher profit, price-earnings ratio (P/E ratio) and return on assets (ROA ratio). Likewise, the revenue growth rate of FBs is also higher than NFBs (Lee, 2006). Some researcher claims that the intensity of outperform is depend on the ownership concentration and the controlling level of the family. The profitability of active family control is usually higher than non-family control however the profitability was not affected by passive family control (Maury, 2006). Zellweger et al. (2007) found that the FBs can generated a profit by 5.6% during the market downtrend while NFBs generate -1.63% in loss. It shows that the FBs can generate higher profit than NFBs. And these were resulting in higher stock valuation of FBs compared to NFBs (Bakker, n.d.). Moreover, Bennedsen et al. (2007), they found that the family succession is negatively affected to FBs’ performance which the ratio of profitability to assets was declined more than 4 percent. Moreover, the intensity of profitability is also impacted by the source of investment capital. The company who using their own capital tends to be more profitability than borrowed capital (Eriotis et al., 2011).


Next, Aitsaranukuldet and Sudharatna (2013) discovered that the family business has high liquidity, strong asset and debt management, capable to generate profit and growth. In other words, they found that the mean of liquidity and asset management ratio of family businesses are positively higher than 1 which mean that the family businesses are able to pay short-term debt and using the assets and capital effectively and efficiently. Moreover, the leverage ratio of family business is lower than 1 which imply that the families have an ability to manage the liabilities, whereas the family businesses have low debt so the interest paid is low as well. However, they found that the family business can make a smaller profit which resulting in small growth although the profit is positive. As the companies have generate the profit, the companies are able to pay dividend to their shareholders or able to increase an investment capital which the companies can expand and growing up.


Conversely, Molly et al. (2010) argue that the company’s debt rate and the business growth rate were negatively impacted by the ownership transition from first generation to second generation. While the profitability was not impacted by ownership transfer. Moreover, they studied on the capital structure of family business and found that there are two different reasons of the capital structure changed when generation changed. Either the change of financing demand or the availability of financial resource. First, the next generation prefer to maintain the business wealth (but parent prefer to create or increase the business wealth) by reducing the debt which mean they do not want to borrow more from creditors. As Kaye and Hamilton (2004) said that the next generation has lower willingness than last generation to take a risk for debt financing. Because the more debt will result in less family control and the more riskiness. Second, as the next generation avoid or dislike to take the risk from debt financing, the availability of financial resource was decreased. Thus, the financing for family business is more difficult. These would affect to the family business performance.


2.5       Conclusion


In conclusion, this chapter provides a comprehensive framework of family business, financial statements, financial measurement technique and reviewed some previous researches on family business performance. First, there are three main criteria to identify that the business is belonging to family, the ownership concentration, the family-controlled company and the family-managed company. Next, the financial statements are the place where the company disclose their financial data. In order for users to collect data and analyse the business performance. Moreover, the FSA is employing in this research as a measurement tool of business financial performance which comprises of various financial ratios. There are 4 main financial ratios used in this research which are profitability ratios, liquidity ratios, solvency ratios and efficiency ratios. Furthermore, this research chooses a trend analysis to compare the financial performance among those sample population. However, the inflation and window dressing of financial statements are the limitations of the analysis. As the trend analysis is comparing the business performance in different periods which money value are changed. And the actual financial statements can be concealed. In addition, some previous studies claim that the family business can generate higher performance than non-family business such as higher profit and growth. But some researcher argue that the ownership transition of family business is negatively affected to business growth. The next chapter will discuss on the methodology of this study such as how to collect the financial data and how financial data is measured by FSA.









3.1       Research Philosophy


In this research methodology section, the non-empirical research method is used to support and prove the hypotheses. There are several research philosophies which defined by Saunders. One of those philosophies was selected and applied in this research, the positivism is mainly focus on the process and measurement of facts through observation. It can analyse and produce a statistical visualisation on data collected from the sources (Saunders et al., 2011).


3.2       Research Approach and Analysis Approach


For the research approach, the deductive approach was selected to be apply in this research. Deductive approach is applied to investigate the knowledge acquired from the study of literature. This investigation of data has already been handle in the previous section which involves identifying a scope of research, research questions and hypotheses. This hypothesis could drive the process of data collection and analysis. Moreover, the important variable, concept and calculation equations were identified in the literature review. This study of literature is aim to investigate the information that benefits the research which it follows the deductive approach (Merton, 1967).


Figure 3.1: Research Process


Next, Kothari (2004) and Reilly (2016) stated that there are two common analysis approaches of the FSA which are Trend analysis, also known as Time-Series analysis, and Cross-Sectional analysis. Trend analysis is an analysis that emphasize on several periods which means comparing the business performance on one period to another period. For example, comparing the current year performance to the last year performance. Next, Cross-Sectional analysis is an analysis of several companies which means comparing the business performance in different company. For example, comparing the business performance of company A with the business performance of company B. Therefore, the trend analysis is more suitable and more effectiveness for this research as the researcher compare the overall of FB’s performance at different periods.


3.3       Data Collection


This research uses the secondary data collection method. The theoretical framework of the research is gathering from various sources such as books, research journals, articles, and previous studies. Moreover, the data used in the analysis process was primarily collected from the companies’ annual reports which mainly focus in the financial report section. The sample population of this study is the companies who registered in the Stock Exchange of Thailand so the companies are required to publish the financial reports to the public where its available on the companies’ website. The list of companies used in the research is shown in table 3.1. The annual reports used is in this research was between years 2012 to 2016. The data is calculated using the Microsoft Excel application which those data is gathered from financial reports. The type of reports used in data analysis process is listed below.


Financial Statements:

  • Statement of Financial Position – It illustrates the company’s status in term of financial aspect. This report is contained with three main components: Assets, Liabilities and Equity. This statement is also known as Balance sheet.
  • Statement of Profit or Loss – It demonstrates the company’s revenue and expenses that occurred in the account period which also show whether the company is making profit or loss.
  • Statement of Cash Flow – This statement is present the cash flow of the company which divided into three main activities such as cash flow from operating, cash flow from financing and cash flow from investing. This records every cash transactions that show how money of the company is being utilised.


Table 3.1: List of sample population

Label Company Name
ANAN Ananda Development Public Company Limited
BA Bangkok Airways Public Company Limited
CENTEL Central Plaza Hotel Public Company Limited
DCC Dynasty Ceramic Public Company Limited
EPG Eastern Polymer Group Public Company Limited
ICHI Ichitan Group Public Company Limited
JAS Jasmine International Public Company Limited
M MK Restaurant Group Public Company Limited
SPCG SPCG Public Company Limited
WORK Workpoint Entertainment Public Company Limited


3.4       Variable Calculation and Measurement


The data used in this analysis was collected from the financial reports of ten listed companies in the Stock Exchange of Thailand. After the data collection was done, a raw data will be categorised into theme base on the method of calculations. The collected data would be analysed under four mains themes which are listed below.

Data grouping:

  • Profitability ratios
  • Liquidity ratios
  • Solvency ratios
  • Efficiency ratios


The process of data analysis in this research is contained with four main themes. First, the profitability ratio is focused on the ability of company to generate profit. And there are four level of company’s profit that show in the Statement of Profit or Loss; which are gross profit, operating profit, profit before tax and net income. Therefore, the profitability ratio can be used to measure how effective the company’s profit in each level. Moreover, the profitability ratio can also be used to measure the profit margins on available assets and capital investment. The data used in this calculation can be found in the Statement of Financial Position and Statement of Profit or Loss. A brief description of profitability ratios used in this study is listed below.


Profitability ratios:

  • Gross Profit margin – measure how much the company can generate profit after cost of goods sold. The higher margin means the more effective on the product cost management.
  • Operating Profit margin – measure how effective the company can manage the administration expenses. The higher margin means the smaller ratio of operating expenses. The operating expense is an expense that directly related to the main activities of company.
  • Pre-tax Profit margin – measure the rate of company’s profit before paying tax. The higher margin means the greater performance of profit making on the overall of business operations.
  • Net Profit margin – measure the profit after deducting the finance cost and tax expense. The higher margin means the higher profit generated for the year.
  • Return on Asset (ROA) – measure how much the company can generate profit by using the company’s assets. The higher percentage means the more effective of implementing the company’s assets.
  • Return on Equity (ROE) – measure how effective the investors’ capital being employed. The higher ratio means the more effective of using the investors’ capital which lead to higher return of shareholders.
  • Return on Capital Employed (ROCE) – measure how effective of the company’s total capital, including debt and equity, is being used. The higher ratio means the higher earnings from all capital invested.


Second, the liquidity ratio is mainly focused on the company’s ability to repay short-term debt. To measure the ability of short-term debt repayment, the researcher will use the value of current assets to determine the company’s potentiality. Therefore, the study will measure the potential level by using the different type of current assets. And the data used in these calculations can be collected from Statement of Financial Position and Statement of Cash Flow. A brief description of liquidity ratios used in this study is listed below.


Liquidity ratios:

  • Current ratio – measure the company’s capability of short-term debt payment by total current assets. It indicates that how many times of current liabilities can be paid by current assets. The ratio equal to or higher than 1 mean the value of company’s current is higher than short-term debt which mean they can repay short-term debt by current assets.
  • Quick ratio – measure the company’s capability of paying short-term debt by current assets that are high liquidity or easy to convert to cash. The ratio equal to or higher than 1 means the company are very high liquidity.
  • Operating Cash Flow ratio – measure the ability of short-term debt payment by cash flow from operating. The higher ratio mean the higher amount of time that company can repay short-term debt by cash from operation.


Third, the solvency measures the company’s capability to repay debt obligations on both short-term and long-term debts. The researcher will use the company’s net income to determine the company’s potentiality. And the data used in these calculations can be found in Statement of Profit or Loss and Statement of Financial Position.


Solvency ratios:

  • Solvency ratio – measure how much the company’s earnings can pay off the company’s debts. And it also indicates that how many years that the company can pay off all debts, if the company’s earnings are the same every year. The earnings are a company’s net profit for the year which exclude the depreciation expense.


Last, the efficiency ratio measures the capacity of company in assets management. The data used in these calculations can be found in Statement of Profit or Loss and Statement of Financial Position. The followings are a brief information of efficiency ratios.


Efficiency ratios:

  • Accounts Receivable Turnover – measure the length of time from the credit sales to the collection date. The higher ratio mean the longer period of cash collection which reflect to the lower performance of credit management.
  • Fixed Asset Turnover – measure how effective the company employing the fixed asset to generate revenue. The higher ratio means the more revenue that fixed asset can generate





Research Findings


Profitability ratio




The researcher found that the average gross profit margin of FBs in Thailand for the past 5 years is 42.48%. According to the graphs above, it shows that the FBs were managing the product cost very well in 2013, 2014 and 2015. The Z-score graph illustrates that the gross profit in 2013 has the highest positive from the 5-years average. This means that the companies were highest performing to control the lowest product cost. While the highest fluctuation was in 2016 which it was lower than 5-years average.





















































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Solvency ratio












Efficiency ratio
























Profitability ratio 5-years Average
Gross Profit Margin 42.48%
Operating Profit Margin 17.88%
Pre-tax Profit Margin 17.99%
Net Profit Margin 15.04%
Return on Asset (ROA) 11.45%
Return on Equity (ROE) 26.97%
Return on Capital Employed (ROCE) 15.72%
Liquidity ratio  
Current ratio 1.63
Quick ratio 1.07
Operating Cash Flow ratio 0.63
Solvency ratio  
Solvency ratio 0.39
Efficiency ratio  
Accounts Receivable Turnover 64.69
Fixed Asset Turnover 1.5














5.1       Summary






5.2       Limitation of the research


According to Sinha (2012), there are some limitations of FSA technique because the financial statements are presenting in term of money value. The money value will be varied when the time changed or often known as “inflation”. This would affect to the purchasing power. As the inflation occurred, the intrinsic value of business is also adjusted. Because the value of company assets, especially fixed assets, were impacted by inflation which the financial statements do not present the inflation. In addition, the inflation is often incurred in every year which could dramatically affected in cumulative. For this reason, the comparison of business performance in different periods become more difficult.


Moreover, there is a possibility that public companies are prepared more than one set of financial reports. Most public companies desire their performance to be excellent because they want to attract investors to invest more and want a stock price increase. Therefore, some companies may create another report to giving pleasant numbers and to hide unpleasant data in financial statements. Even though, the researcher can reach the actual financial statements, the report perhaps misleads some information which also known as “window dressing”. As Healy and Palepu (2012, p.1-9) stated that “Managers can also use financial reporting strategies to manipulate investors’ perceptions”. This would make financial result of that company is inefficient. For example, increasing the current ratio by acquiring the long-term debt at the end of the year in order to increase cash holding and repay at the beginning of the next year. Therefore, it is difficult for researcher to reach the actual data. And this would make the data analysis is in accurate and also make the analysis of intrinsic value more difficult.

As the time limitation, the researcher cannot analyse the whole family businesses’ performance. Because there is a huge amount of family businesses in Thailand. Thus, the research may not have strong result to judge the overall of Thai family businesses’ performance as the sample population in this research is only 10 companies. And the data of private companies are unavailable so researcher cannot reach the company data (Poza, 2010). So, the researcher is decided to analyse the companies who registered in the SET which are public companies. Therefore, the result may be inaccurate or may not useful for private companies.




5.3       Future Researches









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