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Financing Profile: Women Entrepreneurs (October 2010)
Financial statement analysis
To better assess the financial health of a firm, five standard financial ratios (see text box) were calculated using linked tax file data (Table 4).Footnote 3 As shown in the table, there are discernible differences between gender groups in each year. In 2004, the median current ratio for majority female-owned firms was slightly less than 1.0, whereas the median current ratio for majority male-owned firms was about 1.3, suggesting stronger financial health. In 2007, however, the median current ratios for majority female-owned and majority male-owned firms were almost identical.
| 2004 | 2007 | |||
|---|---|---|---|---|
| Majority Female-Owned | Majority Male-Owned | Majority Female-Owned | Majority Male-Owned | |
|
Source: Tax file data linked to Statistics Canada, Survey on Financing of Small and Medium Enterprises, 2004 and 2007. |
||||
| Current Ratio | 0.98 | 1.27 | 1.51 | 1.49 |
| Gross Profit Margin | 0.66 | 0.59 | 0.74 | 0.69 |
| Operating Profit Margin | 2.6% | 3.5% | 2.1% | 4.6% |
| Interest Coverage | 1.82 | 2.25 | 1.98 | 3.46 |
| Debt-to-Equity* | 0.86 | 1.07 | 0.62 | 0.85 |
Current Ratio = Current Assets
Current Liabilities
Indicates the market liquidity of a business. A higher current ratio signals that a firm is in a better position to cover short-term liabilities.
Gross Profit Margin = Sales Revenues - Cost of Goods Sold
Sales Revenues
Measures the proportion of net revenue after accounting for the cost of goods sold. A higher gross profit margin indicates that a firm has more resources available to pay overhead costs.
Operating Profit Margin =
Net Profit Before Tax + Interest Expenses and Bank Charges
Sales Revenues
Expresses operating profit as a proportion of sales revenues. A higher operating profit margin signals that a firm has more resources available to pay fixed costs.
Interest Coverage = Net Profit Before Tax + Interest Expenses and Bank Charges
Interest Expenses and Bank Charges
Indicates a firm's ability to generate enough income to cover interest expenses. A higher interest coverage ratio suggests that a firm is in a better position to avoid default.
Debt-to-Equity = Total Liabilities
Total Equity
Indicates what proportion of equity and debt a firm is using to finance its assets. A higher debt-to-equity ratio indicates that a firm is using greater leverage.
In terms of median gross profit margin, majority female-owned firms performed marginally better than majority male-owned firms in 2004 and 2007. In contrast, majority female-owned firms had lower median operating profit margins in both years.
Majority female-owned firms also had lower median interest coverage ratios in 2004 and 2007 than majority male-owned firms, suggesting that majority female-owned firms were in a weaker position to meet interest expenses. Finally, the median debt-to-equity ratio was higher for majority male-owned firms than majority female-owned firms in both years, suggesting that male business owners were more aggressive in financing firm growth through debt.
Footnotes
- Footnote 3
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Due to the frequent presence of large outliers, the use of median values — in lieu of average values — was considered to be more reasonable.
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