Profitability Indicators Comparision
We got a conclusion in M1: the profit trend of the wholesale distribution industry in
Australia and New Zealand is negatively correlated with that in the United States, which
may mean that the profit of the wholesale distribution industry flows between North
America and Oceania; There is a positive correlation between the profit trend of the
wholesale distribution industry in Australia and New Zealand, which shows that the
profit of the wholesale distribution industry in Australia is almost synchronous with that
in New Zealand within Oceania.
In order to study and discuss whether there are differences in profitability between
different industries in wholesale distribution between Australia and New Zealand, we
choose several key profitability variables in M1, which are: the ratio of net income
before interest and tax to operating income (EBIT/Revenue), the rate of return on
employed capital (ROIC), the ratio of net income before interest and tax to cost of good
sales (EBIT/COGS) and the ratio of net income before interest and tax to total assets
(EBIT/Total Assets). These variables are ratios, which can fully exclude the influence
of absolute operating income and profit on the larger value and smaller absolute value.
For example, Australia's land area is larger than New Zealand's, and there may be
wholesale distribution companies with much larger scale and volume than New
Zealand's. If we directly adopt the net income before interest and tax and operating
profit at this time, there is no comparability between companies with different volume,
and our hypothesis test will also reject the situation that the difference is equal to zero.
Table 1:
Symbol Definition
1 the ratio of net income before interest and tax to operating income
(EBIT/Revenue)
2 the rate of return on employed capital (ROIC)
3 the ratio of net income before interest and tax to cost of good sales
(EBIT/COGS)
4 the ratio of net income before interest and tax to total assets (EBIT/Total
Assets)
AU Australia
ZN New Zealand
AU1 : in the result of hypothesis test - the average ratio of net income before interest
and tax to operating income (EBIT/Revenue) of Australian wholesale distribution
industry in the five years from 2016 to 2020.
In the hypothesis test, we use D to represent the difference between the same
profitability index (PI) of Australia and New Zealand.
=
−
= 1, 2, 3, 4
Our null hypothesis is that：
0:
≠ 0
Our alternative hypothesis is that:
1:
= 0
We chose three industries for analysis: Automobile, Electronic and Construction
These industries have a large market scale, which means that they generate a lot of
income. The advantages of analyzing these three industries are: ① These industries
have diversified customer groups, including enterprises and individuals. Analyzing the
wholesale distribution network in these industries can help us understand how the
distribution network serves different types of customers, which is very useful for
companies seeking to expand the distribution network. ② It is convenient for cross-
country comparison. By analyzing these industries in two different countries, it is
possible to compare the differences of wholesale distribution networks between
countries. This is helpful to understand the factors that affect the distribution network
in different markets, such as regulatory policies, cultural differences and economic
conditions.
The following is the result of hypothesis testing on the above variables.
There are two kinds of possible errors in hypothesis testing:
① The first kind of error in hypothesis testing is that the on null hypothesis is actually
correct, but the decision we make is to reject the null hypothesis, which is called
"rejecting the truth".
② The second kind of error in hypothesis testing is that the null hypothesis is incorrect,
but the decision we make does accept the null hypothesis, which is called "accepting
the false".
In the above hypothesis test, the difference of the four profit indicators between
Australia and New Zealand is greater than 5% in the three wholesale and distribution
sub-industries, that is to say, at the significance level of 5%, we accept the original
hypothesis. For the whole sample, we also accept the null hypothesis. We think that the
ratio of average net income before interest and tax to operating income (EBIT/Revenue),
average net income before interest and tax to cost of goods sold (EBIT/COGS), average
net income before interest and tax to total assets (EBIT/Total Assets) and average return
on employed capital (ROIC) exist difference in Australia and New Zealand.
All Sample’s Box Graphs
Table 2:
Australia
New
Zealand
All sample AUTO ELEC CONS
All Sample Not reject
AUTO Not reject
ELEC Not reject
CONS Not reject
COVID-19 Effect
We adopted the above-mentioned four indicators that can reflect profitability to conduct
T-test from 2016 to 2020
Symbol Definition
The
first
figure
1 the ratio of net income before interest and tax to operating
income (EBIT/Revenue)
2 the rate of return on employed capital (ROIC)
3 the ratio of net income before interest and tax to cost of good
sales (EBIT/COGS)
4 the ratio of net income before interest and tax to total assets
(EBIT/Total Assets)
AU Australia
ZN New Zealand
The second figure
16-20
16 17 18 19 20
2016 2017 2018 2019 2020
For Australia:
Let the difference between each two years and − 1 in each profitability
indicator equals to:
=
− −1
= 1, 2, 3, 4
= 17, 18, 19, 20
We need to focus on the p value of the T-test between 2019 and 2020
The null hypothesis is that：
0:
≠ 0
The alternative hypothesis is that:
1:
= 0
We use STATA statistical analysis software to carry out T-test for the difference values
in different years under the same profitability index.
We find that the p values of profitability indicators 1, 2, 4 are all less than 5% in 2019
and 2020 and our original hypothesis is 0:
≠ 0
Therefore, we determine that at the significance level of 5%, the COVID-19 epidemic
has no influence on the ratio of net income before interest and tax to operating income
(EBIT / Revenue), return on employed capital (ROIC) and the ratio of net income
before interest and tax to total assets (EBIT / Total Assets).
That is, there is no COVID-19 effect on the 3 profitability indicators.
For profitability indicator 3 in 2019 and 2020, the p value is greater than 5%, so we
determine that under the significance level of 5%, the COVID-19 epidemic has an
impact on the ratio of net income before interest and tax to cost of good sales (EBIT/
COGS).
That is, there is COVID-19 epidemic effect on EBIT/COGS
For New Zealand
Let the difference between each two years and − 1 in each profitability
indicator equals to:
=
− −1
= 1, 2, 3, 4
= 17, 18, 19, 20
We need to focus on the p value of the T-test between 2019 and 2020
The null hypothesis is that：
0:
≠ 0
The alternative hypothesis is that:
1:
= 0
We use STATA statistical analysis software to carry out T-test for the difference values
in different years under the same profitability index.
We find that the p values of profitability indicators 1, 2, 3, 4 are all larger than 5% in
2019 and 2020 and our original hypothesis is 0:
≠ 0 we do not reject it.
Therefore, we determine that at the significance level of 5%, the COVID-19 epidemic
has influence on the ratio of net income before interest and tax to operating income
(EBIT / Revenue), return on employed capital (ROIC) and the ratio of net income
before interest, the ratio of net income before interest and tax to cost of good sales
(EBIT/ COGS) and tax to total assets (EBIT / Total Assets).
That is, there is COVID-19 effect on the 4 profitability indicators.
Since the p value of the second profitability indicator is 0.06, which is a little larger
than the 5% level, if we slightly relax the rejection range to 10%, we can think that at
the 10% significance level, we reject the null hypothesis, which means that return on
employed capital (ROIC) is not affected by the COVID-19 epidemic.
That is, at the level of 10% significance, there is no COVID-19 effect on return on
employed capital (ROIC)
By analyzing the COVID-19 effect, we find that the wholesale distribution companies
in Australia are greatly affected, while those in New Zealand are less affected. The
reason may be that Australia has a large population and the epidemic is easier to spread
than New Zealand, so some aspects will be affected.
For example, international travel and transportation restrictions may lead to supply
chain disruption, especially for imported goods. This may lead to the inventory shortage
of wholesale distribution companies, thus affecting sales and gross profit margin. The
epidemic may also lead to changes in consumer behavior, such as reducing tourism and
catering consumption, which may lead to a decline in sales of wholesale distribution
companies. Wholesale and distribution companies may face fixed costs such as rent and
labor. If sales decrease, it may lead to a larger proportion of fixed costs in the case of
reduced sales. Australia's wholesale and distribution industry and commodity exports
depend on the international market, and the epidemic may lead to a decline in demand
in the international market, thus affecting sales and profitability.
However, New Zealand has a sparse population and is less affected by the epidemic,
many domestic supply chains are more self-sustaining, so the profitability index of the
wholesale and distribution industry has not changed much before and after the epidemic.