The trend across countrie

The trend across countries varies. Figure 6.6 shows the decomposed trend indexed on the base year 1997. The profit is given by the EBITDA margin to exclude the influence of tax, interest rate, depreciation, and amortisations, which vary across countries. Generally, the profit level is high in 2002 and 2003 for most of the countries. For Italy and the United Kingdom the trend is increasing while it is decreasing for France. Germany shows an increasing trend until 2002 and it falls in 2005. For the Netherlands, it fluctuates from year to year. Poland experienced continuous decline up to 2001 and stabilises till 2005 and decreases again in 2006. Figure 6.6 Mean profitability (EBITDA margin) trend (index, 1997 = 1) for different countries Financial structure Firm financial structure is a very important indicator of a firm's performance. Two financial structure variables, leverage and current assets, are discussed. Leverage is calculated by dividing total liability by total assets. If a company's debt ratio is greater than one, it indicates that the company has more debts than assets. If less than one, its assets are greater than its debts. Accordingly, companies in all six countries have an average debt-asset ratio of less than one (figure 6.7). Average debt-asset ratios of companies operating in Netherlands are highest. Average debt asset ratios per country are greater than 0.6 except for Poland, where the lowest average debt-asset ratio is found. This may indicate the presence of friction for the firms to get access to credit due to inefficiencies in the financial sector or information asymmetries. 59

60 Figure 6.7 shows how different class size of enterprises finances their growth investment. Generally, most size class firms have average debt-asset ratio less than one which indicates their growth financing behaviour incline towards internal source. However, this ratio decline as we go from micro to large enterprises indicating that larger firms finance their growth from internal finance compared to smaller firms. Figure 6.7 Average capital structure of different sized classes of dairy processing enterprises Based on the classification of size classes by country the highest average debt-asset ratio can be found among micro-enterprises operating in the UK, followed by the Dutch medium-sized enterprises. The debt-asset ratios of UK micro-enterprises and Dutch medium enterprises are greater than one, which implies that micro-sized class enterprises in UK (above 1) and medium sized in the Netherlands tend to finance their investment more from external sources. These two classes sizes of the respective countries are more vulnerable compared to other size classes of enterprises. The current asset ratio is important because if the firm is not able to meet its short-term liability the company is not in a healthy status. We use the current ratio to analyse current asset, which relates the current asset to current liability. A current ratio of less than one suggests that the company is unable to pay its current liability. Hence, the current ratio should be at least greater than one and as high as possible. Accordingly, the Netherlands has the highest average current ratio, followed by the UK, Italy, Germany and France (figure 6.8). Poland is the lowest in average current ratio. Across size classes the average current ra-