4.1.2. Business finance
The analysis of business performance around R&D is supplemented by an analysis of finance, for which there are no disaggregated indicators at the regional level in Europe. However, it has been possible for Orkestra to calculate these for the Basque Country, the reference regions in Spain and some European countries. This is an essential element for the competitiveness of firms. Firstly, a lack of access to finance can limit the growth and survival of firms. Secondly, financing is a dimension which is being increasingly incorporated into firms’ business models, as a value proposition for customers. For this reason, the structure of a firm’s financing impacts its capacity to implement its business strategies and the capacity of the territory to compete.
18.104.22.168 The status of Basque firms in comparison with the situation in Spain
During the recent crisis, which brought a downswing in demand and limited access to finance, the excessive debt carried by some firms jeopardised their continued existence. Today the situation is very different. Demand has recovered and liquidity is available. But despite the improvement in the overall situation and the availability of low-cost financing, firms are being cautious when it comes to increasing their debt level.
Orkestra recently analysed the economic and financial trends and position of Basque firms for the 2008–2016 period and compared it with Spain. This analysis shows that Basque firms have increased the share of their equity and reduced the share of their financial debt. This process, which has also taken place in Spain as a whole, makes firms stronger. In contrast, although operating profit in comparison to turnover has made good progress since 2013, it has not returned to pre-crisis levels in the Basque Country, whereas it has done so in Spain. Lastly, thanks to the decrease in indebtedness levels and the cost of debt, Basque firms have increased their capacity to manage their debt and the financing costs they bear. Additionally, the ROA of Basque firms was higher than the cost of debt in 2016. As a result, finding themselves with positive financial leverage, they could increase the firm’s financial return through debt-financed investment policies.
Additionally, another of the analyses carried out in the aforementioned report comprises applying a credit risk model. Applying this model makes it possible to determine the level of credit risk, which is shown on an 11-point scale. The lower the score, the higher the associated credit risk and the worse the financial position. The higher the score, the lower the credit risk and the better the financial position.
Using the value of the average score for 2016 as a measure of comparison, firms in both the Basque Country and Spain report moderate average values, with a tendency to improve in comparison with 2015. The average score for the Basque Country was 6.87, compared to 6.61 for Spain, thus confirming the overall better financial position of Basque firms.
As we can see from Graph 8, this relatively good average situation for Basque firms in relation to the average for Spain is not as positive if the result is compared only with the reference regions that are located in Spain (Aragón, Cantabria, Cataluña and Navarra). Thus, we see that Basque firms are in an intermediate position: better positioned than Aragón and Cantabria, but somewhat lower than Cataluña and Navarra. If we analyse the trend between 2009 and 2016, we see that Basque firms have improved their relative position in comparison with the reference regions in Spain, as at the start of the period they were clearly below Cataluña and Navarra and made comparatively better progress, especially in the early years of the crisis, from 2009 to 2012.
22.214.171.124 The status of Basque firms in comparison with the situation in Europe
The database for the Bank for the Accounts of Companies Harmonised (BACH) project provides information about the economic and financial trends and position of firms for the 2008–2016 period in six reference countries in the EU: Germany, Spain, France, Italy, Poland and Portugal. Despite the differences betweenBACH (the data source used for Europe) and SABI (the data source used for the Basque Country), the degree of homogeneity is sufficient to enable the comparison to provide valid results for the indicators selected (see Table 6). Thus, this comparison suggests that the crisis was not as deep in Europe and that it developed in a stable manner. European firms increased their net worth, although less than Basque ones, and they reduced their commercial debt. The greater impact of the crisis on Basque firms is also reflected in their operating profit, although the greater dynamism of the Basque Country since 2013 made it possible for this indicator to reach a similar level to Europe in 2016. It may be expected that the positive performance demonstrated by the Basque economy in 2017 will consolidate this trend.
The trend in asset turnover ratios is similar in the Basque Country and Europe. They have since recovered from the greater decline between 2008 and 2013. Most noteworthy is that the financial assets of Basque firms are less profitable in comparison to European ones. In contrast, Basque and European firms have a similar debt repayment capacity and capacity to cover financing costs. Finally, we see a reduction in the cost of debt, with the Basque Country positioned even lower than Europe.
When compared at the European level, the Basque company has greater capitalisation, less indebtedness and positive levels of financial leverage
Although we are aware that the general analyses conceal different realities depending on firm size and sector of activity, as a whole, from the comparisons made, it may be deduced that Basque firms have higher capitalisation, less debt and positive financial leverage. Furthermore, since 2013 we have seen the recovery of operating profit levels among Basque firms in comparison with Europe, but not in comparison with Spain. It will be necessary to study the positive growth which may be expected from 2017 figures. Firms in the Basque Country have higher debt coverage than those in Spain and similar to those in Europe. Diverse realities condition the possible strategies to be adopted by firms in the future. On the one hand, those firms that have an adequate capitalisation and debt level, as well as positive financial leverage may face growth and investment processes that reinforce their business ventures and tend to boost financial returns. On the other hand, those firms that are in a vulnerable financial situation should be prepared for a foreseeable rise in interest rates that may compromise their situation.
Gil de San Vicente, I., Murciego, A., Sisti, E., Vivanco, D. (2018). Informe económico-financiero y riesgo de crédito de la empresa vasca, Cuadernos Orkestra