RDP 9402: The Influence of Financial Factors on Corporate Investment Appendix: Data Sources and Construction
May 1994
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Company data are from the Australian Stock Exchange STATEX database and are for a sample of 66 non-financial companies for which data are available for the 11 year period 1982 to 1992.
Gross Cash Flow is group net profit after tax, plus depreciation.
Sales are sales or trading revenue (excluding other income).
Debt is calculated as the sum of both short and long-term securities and loans, and bank overdrafts. Short-term and long-term debt includes secured and unsecured loans, mortgages, leases, bills payable but excludes trading debts. Bank overdraft includes both secured and unsecured overdrafts.
Cash and Liquids are cash and its equivalent, including cash on hand, cash at bank, and short-term deposits.
Tobin's ‘q’ is calculated as:
where:
V = market value of equity
B = market value of debt
F = market value of financial assets
N = market value of inventories
K = replacement value of the capital stock
The components of ‘q’ are:
(i) Market Value of Equity
The market value of common equity, V, is the number of Equivalent Fully Paid Shares multiplied by the end of month price for the month in which the financial year ends. Equivalent Fully Paid Shares are the number of shares on issue at year end plus the number of potential fully paid shares (including contributing, new and deferred shares, and options and convertible notes).[25]
(ii) Value of Debt
Debt, B, is defined as the sum of bank overdrafts, debt due in one year and long-term debt. Bank overdrafts include both secured and unsecured overdrafts. Debt due in one year and long-term debt includes secured and unsecured loans, mortgages, leases and bills payable but does not include trading balances. The book value of debt is taken as a proxy for market value.
(iii) Financial Assets and Inventories
Balance sheet items such as inventories and cash and short-term investments are included in the market valuation of the firm, but not in the replacement costs of the fixed capital stock. The value of cash and liquid assets are deducted from the numerator and inventories are added to the denominator.[26]
(iv) Replacement Value of the Capital Stock
A recursive formula is used to calculate the replacement value of the capital stock, K:
where I is gross capital accumulation, PI is the implicit price deflator for gross fixed private non-dwelling investment, and δ is the depreciation rate. The price deflator is from the Australian National Accounts, (Table 11), Cat. No. 5206.0, Australian Bureau of Statistics. The initial value of the capital stock is adjusted by multiplying the firm's book value of net capital stock by the aggregate ratio of net capital stock at replacement cost to net capital stock at historical cost for the economy as a whole. The aggregate ratio is calculated using data from Australian National Accounts, Capital Stock, (Table 6), Cat. No. 5221.0, Australian Bureau of Statistics and from historical capital stock data supplied by the Australian Bureau of Statistics. Depreciation rates were calculated by taking the weighted ratio of depreciation to capital stock for non-dwelling construction and plant and equipment. Data are from Australian National Accounts, Capital Stock, (Table 6), Cat. No. 5221.0, Australian Bureau of Statistics.