The Causal Relationship Between Financial Ratios and Profitability Ratios of Tourism Enterprises Using KIS-Value

Abstract

This study empirically analyzes the impact of financial ratios on the profitability of tourism enterprises, with the aim of contributing to corporate diagnosis and strategic management planning..The tourism industry is highly sensitive to external environmental changes, and particularly in the wake of the COVID-19 pandemic, the sector suffered significant financial shocks due to plummeting travel demand and operational suspensions. Consequently, evaluating the financial conditions of tourism enterprises and establishing strategic indicators for sustainable growth has become increasingly important. This study was developed in response to these issues, seeking to examine the relationship between financial ratios—namely liquidity, stability, growth, and activity—and profitability. Additionally, it compares financial characteristics of tourism companies listed on the KOSPI and KOSDAQ markets to derive more concrete managerial and policy implications. To achieve this, five research questions (RQs) were formulated: RQ1 What are the types and definitions of financial ratios? RQ2 How are each of the financial ratios correlated with profitability? RQ3 What causal effects do financial ratios have on profitability? RQ4 Which financial ratio has the greatest impact on profitability? RQ5 Are there significant differences in financial ratios between KOSPI and KOSDAQ-listed tourism companies? Based on these questions, the thesis is structured systematically around theoretical discussion, empirical analysis, and practical/policy implications. In the literature review, the theoretical definitions and components of financial ratios that form the analytical framework of this study are discussed, along with a review of relevant prior studies applied to tourism enterprises. Financial ratios are quantitative indicators used to evaluate a company's short-term liquidity, long-term financial stability, growth potential, and asset efficiency, and are widely applied in assessing their relationship with profitability. Liquidity ratios measure a firm's ability to repay short-term liabilities and typically include the current ratio and quick ratio. Stability ratios reflect the balance between capital structure and debt, with key indicators such as the debt ratio and equity ratio. Growth ratios assess a company’s expansion potential based on sales, assets, and capital growth. Activity ratios evaluate how efficiently assets are utilized, using turnover metrics. These financial ratios interact with profitability measures such as return on assets (ROA) and return on equity (ROE), influencing overall performance. The literature reveals that tourism companies, due to their high fixed-cost structure and volatile revenue patterns, exhibit heightened sensitivity to changes in financial ratios. Previous domestic and international studies also confirm that financial ratio characteristics vary across industries and that differences in listing markets can influence corporate performance. These insights provide theoretical support for the construction of the analytical framework and variable selection in this study. This research utilizes panel data from KIS-Value covering a 15-year period from 2009 to 2024 for empirical analysis. The sample consists of four tourism-related firms listed on KOSPI and KOSDAQ that met the inclusion criteria, with a total of 62 financial data points collected per firm. The dependent variables are the profitability indicators ROA and ROE, while the independent variables include liquidity, stability, growth, and activity ratios. Each variable was derived from financial statement items and converted into ratio formats for analysis. Statistical methods including descriptive statistics, correlation analysis, and multiple regression analysis were applied using statistical software. Variance inflation factors (VIF) were calculated to test for multicollinearity in the regression model, and all VIF values were below 5, indicating no serious multicollinearity issues and ensuring model validity. Additionally, independent-sample t-tests were performed to compare financial characteristics between KOSPI and KOSDAQ-listed companies. The analysis was based on the assumption of normality, and efforts were made to enhance data integrity by identifying and addressing outliers and missing values. This methodological design enables the study not only to explore the influence of financial ratios on profitability but also to explain market-structural differences. The empirical results revealed that stability and growth ratios had statistically significant positive correlations with profitability, while liquidity and activity ratios did not. Regression analysis further confirmed that both the debt ratio and equity ratio—key components of financial stability—positively influenced ROA and ROE. This implies that companies with lower debt and more stable capital structures tend to achieve higher profitability, underscoring the importance of financial soundness. In contrast, the liquidity and activity ratios showed no significant influence, suggesting that for tourism firms, long-term financial stability and future-oriented growth strategies are more crucial to profitability than short-term asset management. The t-test comparing KOSPI and KOSDAQ firms indicated that KOSPI-listed companies demonstrated superior performance in terms of stability, activity, and profitability ratios. This is attributed to structural differences, as the KOSPI market generally comprises larger firms with stronger capital bases and more stable management environments. Moreover, the relatively high R² values of the regression models support the validity of the chosen variables and analytical framework used in this study. This study draws several important conclusions regarding the impact of financial ratios on the profitability of tourism enterprises. First, the positive relationships between stability and growth ratios and profitability highlight the need for tourism firms to prioritize long-term financial structure stability and continuous growth strategies. Second, the limited effects of liquidity and activity ratios suggest that structural soundness and future growth potential are more critical to profitability than short-term asset efficiency. Third, the finding that KOSPI firms outperform KOSDAQ firms in financial performance indicates that market characteristics and firm size differences play significant roles. From an academic perspective, this study contributes to the literature on financial analysis in the tourism industry by offering empirical evidence using recent data. Practically, the results can guide managers in identifying key financial indicators for enhancing profitability. Policy-wise, the findings highlight the need for customized support strategies based on financial ratios when designing public support programs for tourism enterprises. Nevertheless, the study acknowledges certain limitations, such as the exclusion of non-financial variables and a relatively small sample size. Future research should consider integrating ESG factors, customer satisfaction, or other qualitative indicators, and conduct more detailed analyses by sub-sector within the tourism industry. Keywords: KIS-Value, financial ratios, profitability ratios, tourism enterprises, travel business, financial management strategy