The Impact of Asset Structure on a Company’s Financial Results Stability

Abstract

The purpose of the article is to examine the impact of asset structure on the stability of financial results of companies. The article verifies two hypotheses: 1. high share of non-current assets in total assets results in high volatility of profitability over time. 2. high share of PPE (Property, Plant & Equipment) in total assets results in high volatility of profitability over time. The methodology of the study includes a literature review and empirical research based on correlation analysis. The research covered the aggregated data of Polish non-financial enterprises employing 10 persons or more keeping accounting ledgers, data for years 2009–2020 (first dataset) and annual financial data of 115 companies from 13 WSE industry sub-sectors for years 2009–2021 (second dataset). The results of the research. The analysis of the asset structure and the volatility of profitability in the research sample indicated industries with large and small values of these parameters. Then, the hypotheses were tested; the results for the second dataset showed that there is a positive and weak, but statistically significant (p value ≤ 0.005) correlation between non-current asset structure ratio and both, ROS and ROS adjusted ratios, and there is a weak, but negative correlation between PPE structure ratio and ROS and ROS adjusted ratios (with p value of 0.021 and 0.076, respectively). On this basis, hypothesis 1 was considered as verified positively, and hypothesis 2 was rejected. The discussion contains suppositions concerning the probable reasons of the discrepancy between the result for the hypotheses 1 and 2.

Keywords

• asset structure
• asset tangibility
• financial results stability
• volatility of profitability
• operating leverage