It is a widespread belief in literature that financial statements, especially those of privately held firms of small and medium sizes, find it difficult to precisely measure performance achieved as well as to anticipate possible future results related to the strategic management ofthe company. This gap in the modern economy appears to increase, since intangible assets and networking competences (traditionally underestimated from accounting indicators even not considered at all in the context of entrepreneurial firms of small and medium dimensions) distinguishes the companies that succeed from those that gain normal or even negative performance.This study demonstrates that financial statements - even if expressed at historical cost - reflects the business model and has significant predictive value about its sustainability over time when the analysis of financial statements takes care of two premises: 1. the analysis covers an adequate period of time; 2. the research is based on advanced methods of accounting data processing, able to highlight the relative position of a company business model undertaking from those implemented by other companies in the same time period. To this end, moving from the observation of 15 variables elaborated from financial statements of 4.455 companies with a turnover of more than € 1 million in 2003, we employed a nonlinearcluster analysis technique based on SOM algorithm (Self Organizing Map) to: (i) detect different business models over the period 2003-2007; (ii) test the predictive ability ofthe same accounting variables by observing the performance development of the sample in an equal and subsequent time period (2008-2011) characterized by adverse economic conditions.The analysis is currently in process to connect BM and some specific accounting characteristics or financial disclosure of the firms that share a defined BM.
Linking financial statements to business models: empirical evidence of annual report’s ability to predict sustainable performance
ROSSIGNOLI, Francesca
2013-01-01
Abstract
It is a widespread belief in literature that financial statements, especially those of privately held firms of small and medium sizes, find it difficult to precisely measure performance achieved as well as to anticipate possible future results related to the strategic management ofthe company. This gap in the modern economy appears to increase, since intangible assets and networking competences (traditionally underestimated from accounting indicators even not considered at all in the context of entrepreneurial firms of small and medium dimensions) distinguishes the companies that succeed from those that gain normal or even negative performance.This study demonstrates that financial statements - even if expressed at historical cost - reflects the business model and has significant predictive value about its sustainability over time when the analysis of financial statements takes care of two premises: 1. the analysis covers an adequate period of time; 2. the research is based on advanced methods of accounting data processing, able to highlight the relative position of a company business model undertaking from those implemented by other companies in the same time period. To this end, moving from the observation of 15 variables elaborated from financial statements of 4.455 companies with a turnover of more than € 1 million in 2003, we employed a nonlinearcluster analysis technique based on SOM algorithm (Self Organizing Map) to: (i) detect different business models over the period 2003-2007; (ii) test the predictive ability ofthe same accounting variables by observing the performance development of the sample in an equal and subsequent time period (2008-2011) characterized by adverse economic conditions.The analysis is currently in process to connect BM and some specific accounting characteristics or financial disclosure of the firms that share a defined BM.
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