3.2.4 Data Analysis
The WACC theory assumes that there is an optimal debt level to
reduce the cost of capital of the company and then increase its overall
performance (see Figure 1 page 12). Therefore, ROE and ROA were analyzed by
groups of leverage in order to verify if this theory holds in agriculture. The
groups more leveraged should have better results in terms of ROE and ROA than
low leverage groups. We should also observe more variability and/or lower
results for groups with really high leverages like group 1 or 2 (Table 10).
This observation would be considered as financial distress.
As presented in part 3.2.2, the data had to be processed to be
exploited. The ROE, ROA and leverage also have to be calculated considering the
specificity of the accounting standards used at the CEFRANCE Isère.
Therefore, ROE and ROA were calculated as follow:
E
P -- w E + P c P -- w
-- P
L
- P: Profit,
- Wc: cost of labor (each FTE self-employed unit of labor
received a cost of the SMIC),
- E: shareholders equity. As no financial market exists to
estimate a market value of farm's
equity in agriculture, the book value had
to be retained,
- Pca: partners current accounts. These amounts are considered
as debt from an accounting perspective. However, it is not considered by
convention as a debt but as shareholder's equity from a consultant perspective
because these «partners» are the shareholders,
- A: total assets,
- L: leverage,
- D: total debts. The value retained was book value, as the
database do not includes
information allowing a recalculation at market value. However,
the interest rate was analyzed at the market value,
- tl: total liabilities.
|
Leverage
|
L < 20%
|
20%= L <40%
|
40%= L <60%
|
60%= L <80%
|
80% < L
|
|
Group #
|
5
|
4
|
3
|
2
|
1
|
Table 10: Groups of debt level
In order to compare the groups, a set of statistical tests
were performed with the software Statgraphic Centurion:
- Shapiro Wilk test and Kolmogorov test for the normality of
the datasets. Density trace and histograms were also used for sample sizes
bigger than 2 000 farms (Shapiro Wilk test cannot be performed for this size of
samples). Normality was tested before each test.
- One-way ANOVA and multiple range comparison to compare the
means of the different groups when the assumptions of normality and homogeneity
of variance were verified.
- When the assumption of normality or homogeneity of variance
was rejected, a non parametric test was used (Kruskal-Wallis). As normality and
equivalence of the variance are the base-assumptions of the ANOVA, the means
cannot be compared if these two hypotheses are not verified. The Kruskal-Wallis
test compares the rank of each observation to overcome this limitation, and
tests if the medians are significantly different or not.
- Mood's and Median test to analyses the medians. It is a
non-parametric test which compares the distribution of each sample around the
overall median of all the groups. Therefore, this test can estimate if the
medians are significantly different.
First, the effect of time was tested. As time has an effect on
ROE or ROA, separate tests were performed for each year in order to isolate the
time effect and analyze the effect on leverage more accurately. Then, the
effect of specialization was tested. As specialization has an effect on ROE or
ROA, separate tests were performed for each specialization to improve the
robustness of the results. The risk error (alpha) represents the risk to reject
the null hypothesis tested when it should be
considered actually true. Because 10% is an acceptable level of
risk error in finance, this alpha was used for all statistical tests in this
research.
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