The study of normative levels of indicators for the company’s assets and capital structure

Tsolmon Sodnomdavaa, Lkhamdulam Ganbat

Corresponding Author: Lkhamdulam Ganbat 

School of Engineering and Economics, Mandakh University, Mongolia

Email: Tsolmon@mandakh.edu.mn

School of Engineering and Economics, Mandakh University, Mongolia

Email: Lkhamdulam@mandakh.edu.mn

Digital Object Identifier: 

https://doi.org/10.53468/mifyr.2024.04.03.39

Abstract: This study aimed to determine the normative levels of key financial ratio indicators by accounting for capital structure characteristics, addressing the lack of a unified methodology tailored to Mongolia’s business sector and firm size. The study employed a quantitative empirical approach using firm-level financial data. We analyzed a total of 2,200 company samples listed on the Mongolian Stock Exchange (MSE) between 2009 and 2022. Working capital ratio and debt ratio were employed as core proxies for capital structure, while profitability indicators were used to assess financial performance. The analysis applied descriptive statistics, non-linear regression techniques, and distribution-based comparisons to examine the relationship between capital structure components and profitability. To ensure robustness, firm size, industry classification, and macroeconomic growth conditions were explicitly considered. The results showed that both the debt ratio and the working capital ratio exhibit a nonlinear relationship with profitability indicators. Profitability improves only within specific threshold ranges of capital structure, while excessive leverage or inefficient working capital allocation leads to declining financial performance. The findings further reveal that normative financial ratio levels vary significantly across industries and firm size categories. Notably, the median provides a more appropriate benchmark for normative levels than the arithmetic mean, because financial ratios exhibit asymmetric distributions and are sensitive to extreme values. These findings indicate that normative financial ratios should be determined using distribution-sensitive measures rather than simple averages. The study contributes to financial statement analysis by proposing a more realistic, sector-specific approach to defining normative benchmarks, with practical implications for financial analysts, corporate managers, and policymakers in emerging markets.

Keywords: Debt ratio, Return on capital, Normative level, Working capital, Joint stock company

Article History: Received 24 August 2024, Received in revised form 26 August 2024, Accepted 27 September 2024

Download file:  Volume 4 Issue 3 39