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Using the WACC methodology to improve the assessment of projects in the french farming industry. Empirical evidences from farm's results of Isère

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par Anaël BIBARD
Grenoble Graduate School of Business - MBA 2012
  

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4.2.3 ROA

4.2.3.1 ROA Tested by Time and Specialization

We applied the same tests for ROA than for ROE. The time effect was first tested as well as
specialization to see if it was necessary to isolate their effects on the ROA. The results were very
similar than for the ROE, which is really logical as ROE and ROA have the same numerator. Again, the

box and whisker plot in Figure 21 illustrates that year 2006 and 2009 were bad in terms of results for farming in Isère with ROA median close to 1%, which is lower than the 1.5% inflation in 2006 (Le Monde.fr, 2007).

Kruskal-Wallis Test for ROA by YEAR

YEAR

Sample Size

Average Rank

2006

568

1253,72

2007

568

1552,39

2008

568

1545,22

2009

568

1269,77

2010

568

1481,39

Test statistic = 73,6591 P-Value = 0 Mood's Median Test for ROA by YEAR Total n = 2840

Grand median = 0,034619

YEAR

Sample Size

n<=

n>

Median

90,0% lower CL

90,0% upper CL

2006

568

339

229

0,00945275

-0,000555481

0,0218933

2007

568

242

326

0,0570648

0,0460463

0,0689174

2008

568

248

320

0,0528593

0,0436125

0,0621654

2009

568

327

241

0,0121847

0,000872383

0,0184358

2010

568

264

304

0,044225

0,0338877

0,0561194

Test statistic = 58,6901 P-Value = 5,46618E-12

B-andW hier P

Figure 21 : Box and whisker plots with median notch for ROA by years (means are shown with a red cross)

Therefore, we had to isolate the time effect to isolate its effect on the ROA.

Regarding the effect of specialization, once again the P-Values were really low, illustrating that we cannot reject the hypothesis that medians are significantly different at 99% confidence. The two tables of the Kruskal-Wallis and Mood's median tests illustrate that cattle's ranching presented significantly lower results than all other production in Isère.

Kruskal-Wallis Test for ROA by SPECIALIZATION

SPECIALIZATION

Sample Size

Average Rank

Dairy production

705

1487,12

Cattle ranching

225

1124,15

-0i4 -0i3 -0i

Grains production

630

0i2

1494,56

Diversified production

RO

1280

1399,45

Test statistic = 40,0263 P-Value = 1,05194E-8

Mood's Median Test for ROA by SPECIALIZATION Total n = 2840

Grand median = 0,034619

SPECIALIZATION

Sample Size

n<=

n>

Median

90,0% lower CL

90,0% upper CL

Dairy production

705

331

374

0,0427384

0,0344119

0,0510433

Cattle ranching

225

153

72

-0,00207533

-0,0192198

0,012193

Grains production

630

292

338

0,0464268

0,0350341

0,0583288

Diversified production

1280

644

636

0,0337455

0,0277409

0,0419674

Test statistic = 35,1914 P-Value = 1,10992E-7

Therefore, we had to isolate the effect of specialization also on ROA. The tests were performed for each specialization and each year separately.

4.2.3.2 ROA for Dairy Producers

The farms analyzed here are the same than the ones for the ROE for dairy producers: 141 dairy farms of Isère. Figure 22 presents the results of the different tests performed to compare the median ROA for dairy farms between 2006 and 2010. The results are close to what can be observed for the ROE: groups 2 and 3 seem to over-perform the other groups.

Figure 22 : ROA for each year and each group of leverage for dairy producers * means significantly higher than **

For year 2007, the group 2 and 3 are significantly better than the group 5. For 2009 and 2010, group

2 is significantly higher than group 4 and 5. Group 1 median on the contrary is lower than group 2 or

3 for all years, and has the lowest median of all groups in 2006, 2008 and 2009. We cannot affirm that this difference is significant as the standard deviations are really high for group 1 (Appendix 11 page 103). However, these elements are clear signs of financial distress.

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