Financial Profitability of Firms and its Determining Factors. (Case of the trade sector, Vlore region, Albania)

Abstract

The main purpose of this paper is to study the relationship between financial profitability and factors such as debt structure, liquidity situation, turnover ratios, size and age of companies, in a sample of 49 large businesses operating in the trade sector in the Vlora region, Albania. An econometric model was built, organizing and integrating the data taken from the certified financial statements of these businesses for a period of three years (2014 to 2016), into the multiple regression model in the form of panel data. The model is found to be statistically significant. The findings of the empirical analysis suggest that there is a positive relationship between financial profitability and accounts payable turnover as well as a negative relationship between financial profitability and short-term debt ratio, long-term debt ratio, inventory turnover, accounts receivable turnover and cash conversion cycle. Both of these relationships result fixed in time, so they can be used for long-term improvement of the entity’s profitability situation.

Keywords

• profitability; econometric model; financial statements; financial ratios