Comparative analysis of return on equity and cash flow generation in the Parma PDO ham sector

The Parma PDO ham sector in Italy is characterized by a great presence of small and medium enterprises (SMEs) and by high absorption of capital to finance investments in fixed assets and working capital. In fact, the aging of pork leg results in high capital requirements for a period of at least 12 months. The paper applies the methodology for the analysis of the profitability and sustainability of a firm's management and suggests specific ratios to analyze the firms of the sector. To achieve this goal, the article analyzes the annual account data of a sample of 50 Parma PDO ham processing firms, showing that economic margins, traditionally applied to assess the sustainability of the management cycle, differ significantly from suggested financial margins. Also, interest coverage ratios (ICRs) differ if calculated by applying an economic or a financial approach. The annual account data of the sample firms highlight the difficulties in credit access, expressed by applying a multiple regression model to analyze return on equity and flow on equity. The analysis suggests a metric to measure more correctly Parma PDO ham processing firms' sustainability.