Profitability and Financial Sustainability Analysis in Italian Aquaculture Firms by Application of Economic and Financial Margins

Abstract

Agricultural Firms operating in the aquaculture sector in Italy are often characterized by high investment and high capital intensity. In fact, these companies need to develop structures and breeding systems to generate adequate cash flow to repay their investment in fixed assets. In addition, the biological cycle of breeding further extends the need for capital, in this case to finance working capital. There is therefore often a mismatch between the economic and financial cycles, wherein profit margins may differ from financial margins. In this way, such companies have an economic advantage but no sustainable financial cycle. In these cases, several crisis may force companies to default, especially when firns are unable to cover debt repayment. This difficulty is particularly present in Italy, where aquaculture firms are often Small and Medium Enterprises (SMEs) and therefore have greater difficulty than large companies accessing the capital market. Our research evaluates the cost effectiveness and financial sustainability of a sample of forty firms operating in the aquaculture sector in Italy, within a timespan of five years, through comparative analysis of the economic and financial margins. The analysis shows that such firms are capital intensive (TA/VP of median value is 1.16%). Financial debt emerges as the first source of capital then increasing companies’ financial dependence through credit systems and borrowing costs. Firms have a particular absorption in the NWC cycle, with I_DAYS being 143.29 days, AR_DAYS being 72.75 and 145.51 AP_DAYS expressing financial operating cycle (I_DAYS + AR_DAYS - AP_DAYS) with a length of 70.53 days. Profit margins, even if they are correlated with financial margins, are lower on average. The research highlights that economic model worst explains FCFE (F = 0.011 and adjusted R² = 0.803), while the financial model best explains FCFE (F = 0.000 and adjusted R² = 0.922). Our research will be further developed through analyzing cooperatives, unincorporated partnerships and sole proprietorships. It may also be useful to undertake a comparative analysis of aquaculture firms operating in other countries of the Mediterranean basin.