Difference Between the Real and Estimated Size of a Company

Abstract

Small and medium-sized enterprises (SMEs) hold a crucial role in modern economies, contributing significantly to wealth generation and job creation. This study aims to explore the correlation between specific financial ratios and construct a synthetic measure to understand the business size of selected Catalan SMEs. Using discriminant analysis, the methodology calculates and explains company size, considering synthetic dimensions generated through principal components analysis with a set of financial ratios as input variables. By utilizing this information, the study precisely explains the “size” classification variable, detecting discrepancies between reported and actual company sizes to address potential tax evasion. The valuation of the classification process determines the necessary adjustments between real and estimated sizes, providing valuable insights into the business sizes of analyzed Catalan SMEs.