In the contest of Europe, do small firms have a higher risk than larger firms? : analysis

Abstract

The aim of this dissertation is to identify the relationship between risk and European firm size. This is done by using financial indicators which consists of the liquidity, profitability, financing, business risk and dividend policy indicators, for each firm chosen. The European firms are chosen at random from different sectors, varying from healthcare to technological sectors. As for the methodology, this dissertation uses a quantitative approach. The analysis is based on gathering financial indicators data of each firm, including Current Ratio, Accounts Receivable Turnover, Inventory Turnover, Current Liability Ratio, Operating Profit Margin, Fixed Assets Turnover, Debt Ratio, Fixed Charges Coverage, Variability of Operating Income and Dividend Pay-Out Ratio. Each ratio was averaged over a specified period of 4 years, from 2015 to 2018. Then, a discriminant analysis test is carried out using the gathered data to come out with the results. Basically, this dissertation findings depict that there is a notable difference between the small and large firms that operate in Europe. The results show that from all the indicators, the liquidity indicator, Current Liability Ratio, is the most distinguishing between the two parties, since this exhibits that small firms possess more current liabilities. Although this indicator is the most distinguishing one, other indicators are also important in their own ways to distinguish between the two groups of firms.