Abstract - Quest for Global Competitiveness - Universidad de Puerto ...

13Total debt to equity = (Long-term debt + Current portion of long-term debt +Current portion of capital lease obligations) / ((Stockholders' equity + Treasurypreferred stock) - (Preferred stock + Preferred paid-in capital))Total debt to equity (TDE) relates long-term and current liabilities arising fromlong-term debt to total common stockholders‟ equity or total stockholder‟s equity net ofpreferred stockholders‟ equity. Long-term debt to equity (LTDE) compares size of longtermdebt relative to that of the other major long-term financing source, equity capital.Debt management is important to ensure that a company has an optimal mix of debtand equity. Higher debt levels increase the potential returns for equity holders, but ithas the added cost of higher default risk or inability to pay debt principal and/or interestowed.Net Property, Plant, and Equipment turnover (NPPET) and total asset turnover(TAT) are asset management measures. Asset management has to do with the ability ofa company to make an efficient use of invested assets to generate revenues from theiroperations. Turnover measures relate total revenues to assets (net property, plant, andequipment or total assets).Liquidity measures include net current assets as percent of total assets(NCAPTA) and net property, plant, and equipment as percent of total assets(NPPEPTA). Assuming that current assets other than cash are readily convertible tocash, higher amounts of current assets as a percent of total assets may increase acompany‟s liquidity or ability to pay current liabilities as they become due.An additional measure, logarithm of total assets (LTA) is used as a proxy forcompany size. This measure controls for differences in company performance that maybe explained by a company being of large, medium, or small size.Descriptive AnalysisTable 1 (see tables in Appendix A) shows descriptive statistics for financialperformance measures used in the regression analysis. The performance measuresinclude profitability ratios as dependent variables – return on assets (ROA), return onequity (ROE), and return on investment (ROI) – while the control variables are eitherasset management – total asset turnover (TAT) and net property, plant, and equipmentturnover (NPPET) – or debt management ratios – long-term debt to equity (LTDE) and