THE EFFECT OF OPERATING RATIOS ON FIRM VALUE: AN APPLICATION IN EUROPEAN AIRLINES

Abstract

Firms should use their assets efficiently to increase their profit. There are many methods to evaluated the productivity of firms' activities. Ratio analysis is widely used to analyze productivity for financial performance. This study is used activity ratios to evaluate the financial productivity of airlines. Activity ratios are used the productivity of firms' assets, receivables, payables, inventories and fixed assets. As firms use their assets productively, their profit increases. Firms' high performance can raise their stock value, which in turn, increases their value. In this study, it is aimed in productivity in terms of activity ratios for Airlines. In addition, it is investigated the effect of activity ratios on firm value in this study. The 7-years (2010-2016) data of the top 10 airlines operating in Europe are used in the implementation. Asset turnover, inventory turnover, accounts receivables turnover, financial leverage ratio and stock price variables are analyzed using the method of panel data. According to analysis of results, firm value is positively affected by accounts receivables turnover and asset turnover, and negatively affected by inventory turnover and financial leverage ratio. As the financial productivity increases, the value of the firm increases.