Artikel

Profitability ratios in the early stages of a startup

This study develops a mathematical framework to analyze the time series of profitability ratios in the early stages of a startup. It is assumed that the expenditure of the startup grows at a steady rate and generates a proportionally identical flow of revenue in each period. The profitability in terms of the internal rate of return (IRR) and the lag structure of revenue flows are assumed constant over time in describing the adjustment process towards the steady state. The startup is assumed to expense in each period a constant part of periodic expenditure and beginning-of-the-period assets. The adjustment processes of three kinds of profitability ratios are investigated: return on investment ratio, profit margin (as percent of net sales), and (traditional) cash-flow margin (as percent of net sales). It is shown that IRR, growth, expense rate, and lag structure strongly affect the early time-series behavior of profitability ratios. Thus, in the early years, due to unstable adjustment processes, profitability ratios are unable to reflect profitability (IRR) properly and can give distorted signals of the performance of a startup. These findings are supported by numerical analyses with the parameters estimated for a sample of 2608 Finnish startups classified into five clusters.

Sprache
Englisch

Erschienen in
Journal: The Journal of Entrepreneurial Finance (JEF) ; ISSN: 1551-9570 ; Volume: 19 ; Year: 2017 ; Issue: 2 ; Pages: 1-28 ; Montrose, CA: The Academy of Entrepreneurial Finance (AEF)

Klassifikation
Management
New Firms; Startups
Entrepreneurship
Single Equation Models; Single Variables: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
Firm Behavior: Theory
Firm Behavior: Empirical Analysis
Bankruptcy; Liquidation
Accounting
Thema
startup
profitability ratios
early time-series
steady state
Finnish firms

Ereignis
Geistige Schöpfung
(wer)
Laitinen, Erkki K.
Ereignis
Veröffentlichung
(wer)
The Academy of Entrepreneurial Finance (AEF)
(wo)
Montrose, CA
(wann)
2017

Handle
Letzte Aktualisierung
10.03.2025, 11:42 MEZ

Datenpartner

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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Artikel

Beteiligte

  • Laitinen, Erkki K.
  • The Academy of Entrepreneurial Finance (AEF)

Entstanden

  • 2017

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