Analysis of the Risk of Bankruptcy of Tomato Processing Companies Operating in the Interregional Interprofessional Organization “OI Pomodoro da Industria Nord Italia”

Abstract

The processed tomato is one of the major food products of Italy and characterized today many Italian Regions, in northern and southern Italy, even though the firms in the industry have had difficulties, in recent years, due to an increase in the cost of raw materials. Furthermore, tomato processing firms are often characterized by significant investment in fixed assets and working capital, with an consequent increase in equity and/or debt financing, with consequent increasing of the risk of bankruptcy, as happens to many firms in the sector in recent years. The aim of the research is than to analyze the risk of bankruptcy of tomato processing companies applying financial ratios. To achieve this goal, the research consider the annual data of a sample of 17 tomato processing firms operating in the Inter Regional Interprofessional Organization “OI Pomodoro da Industria Nord Italia”; firms’ data are divided into still-active (not-distressed) and failed (distressed) firms, with the aim of analyzing the differences between financial data and management practices of the two groups of firms to evaluate the sustainability of the business cycle. The company data suggest that larger firms, with adequate financial structure, have been able to withstand the tomato market crisis in recent years, where distressed firms are on average smaller and suffer from a higher recourse to debt capital with lower profit margins than not-distressed firms. The research could then be applied by entrepreneurs, managers, bankers and public operator to define good practices of management to be achieved and measured with financial ratios even in order reduce the risk of distress for firms operating in tomato sector.