1st ICAI 2020

International Conference on Automotive Industry 2020

Mladá Boleslav, Czech Republic

The Relationship Between Economic Value Added and Turnover to GDP Ratio of Automotive Industry in EU-27 Countries Pavel Neset 1 , Romana Čižinská 2 ŠKODA AUTO University 1,2 Department of Law and Economics 1

Department of Finance and Accounting 2 Na Karmeli 1457, Mladá Boleslav, 293 01 Czech Republic e-mail: pavel.neset@savs.cz 1 , romana.cizinska@savs.cz 2

Abstract Economic value added (EVA) is a crucial measure of a company’s financial performance. Its decomposition into individual value drivers enables understanding of the attitudes towards wealth creation applied by company management. The ratio of the turnover of automotive companies to GDP and/or GDP per capita indicates the significance of this industry for a country’s economic development and competitiveness. Our research uses selected available data from 14,289 companies in the automotive industry (NACE Rev. 2: 29 – Manufacture of motor vehicles, trailers and semi-trailers) in EU-27 countries and covers the time period from 2015 to 2018. Since there is negative correlation between profitability and turnover to GDP ratio, the EU-27 countries can be divided into several categories. The aim of the paper is to uncover the relationship between the importance of the automotive industry for the countries in question and the financial performance of local automotive companies. Subsequently, we discuss and identify the key value drivers of automotive companies in different countries. Keywords: economic value added, financial performance, value drivers JEL Classification: D24, G32, O12 1. Introduction and Literature Review The automotive industry, with its long tradition and positive trade balance, is of strategic importance for the European economy. However, the role and position of the industry varies from country to country. In this paper, we use the ratio of the turnover of automotive companies to GDP and/ or GDP per capita to identify the significance of the automotive industry for economic development and competitiveness of EU-27 countries. Subsequently, we analyze and identify typical patterns of value creation of local automotive companies. Our work is based on rough estimates only using solely publicly available data. Nevertheless, since we work with aggregate data for the whole local industry of individual EU-27 countries, we eliminate the influence of the ordinary deviations as well as some of the consequences of transfer pricing in the EU multinational groups.

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