Search Results (2)

The biogas sector in Europe and Italy is attracting growing investment, combining agricultural activity, the circular economy, and renewable energy production. Firms in the sector widely use debt capital and, for this reason, there is a need to evaluate the structure of investments, financing, and debt service capacity calculated by applying interest coverage ratios (ICRs). ICRs are widely used by banks in granting loans, and calculation of ICRs allows managers and policy makers to correctly evaluate firms’ performance in the sector. In this research, based on a sample of 160 observations, the structure of investments and sources of financing of firms in the biogas sector, operating in northern Italy, are analyzed. ICRs are calculated with different approaches to establish which ICRs provide the most reliable results in the application. The research analyzes the correlations and highlights significant differences between ICRs. The research highlights some important findings: (a) the NWC is negative in 109 out of 160 observations and, therefore, constitutes a source of financing in the majority of observations; (b) ICRs based on EBITDA and CF are above the threshold value of “1” in 143 and 145 observations, respectively, while ICRs based on EBIT, OCF, and UFCF are above the threshold value of “1” in 132, 133, and 122 observations, respectively. The research allows the conclusion that the ICRs based on EBITDA and CF tend to overestimate results; ICRs based on EBIT, OCF and UFCF are preferable, and can therefore be applied by managers, banks, and policy makers and be used as debt covenants. For the calculation of the repayment of the NFP, the research has highlighted that ICRs in which the cost of the debt is deducted from the numerator are preferable. The research can thus be usefully applied and expanded to other territories, or by considering a larger sample with the aim of inferring conclusions of general validity. Full article

Agri-food companies play an economic, social, and environmental role. In Italy, the typical products protected by the European Union with the PDO and PGI marks are spread throughout the national territory, even in disadvantaged ones, and generate turnover, employment, and positive effects in related industries. These companies are often of medium or small size (SMEs) and are financially constrained. The research applies the assessment of financial sustainability to the balance sheet statement (BSS), financial ratios (FRs), interest coverage ratios (ICRs), duration of the cash conversion cycle (CCC), and net working capital (NWC) data. It shows that companies in the sector have high capital intensity in both the fixed asset (FA) and NWC cycles. Profitability is largely eroded by the cost of debt (COD). Financial sustainability is calculated through the following: (1) the duration of the cash conversion cycle (CCC), broken down into the cycle lengths of inventory, receivables, and payables; (2) the calculation of the income and financial margins generated by the management and their correlation; (3) the calculation of financial ratios (FRs) and the verification of financial leverage (ROA > ROD); (4) the calculation of income and financial interest coverage ratios (ICRs) and tests on the significant differences between them. The application of ICRs with the financial methodology applied in the research makes it possible to (1) improve the assessment of financial sustainability and reduce the related risk and (2) reduce the information asymmetry between the company and the bank, facilitating access to credit. The duration of the CCC is negatively correlated to profitability (ROE), while size and economic performance are positively correlated. The ICRs (interest coverage ratio) calculated with the financial approach are statistically different from the ones calculated with the economic one. The application of the result is relevant to industry operators and for future research. The research is replicable; the results can be tested on other sectors of the agri-food sector and disseminated to operators. Full article