Evaluation of Factors Affecting Companies Value of Lithuanian Dairy Industry

Asta Saboniene, Mantas Markauskas


Purpose. The main purpose of the paper is to analyze the economic situation of Lithuanian dairy sector and to evaluate the factors affecting values of Economic Value Added indicator for largest companies in Lithuanian dairy industry.

Methodology. Calculations of Economic Value Added indicator and adjustments to collected data were based on methodology suggested by F. J. Fabozzi (2003). Factors affecting Economic Value Added were chosen after analysis of academic literature and articles (Miles, Scott 2004; Cypher, Dietz 2004; Louter 1991). The main economical factors as gross profit margin, prime cost of purchased raw milk, productivity per employee, export, interest rates and market share were employed in evaluating of companies value. For data processing linear regression analysis was applied and trend function in Microsoft Excel was used to assess the trend. Program package Econometric Views was used for econometric analysis of collected data. The empirical study was performed using data of four largest dairy companies of Lithuania: AB “Pieno Žvaigždės“, AB “Rokiškio sūris“, AB “Vilkyškių pieninė“ and AB “Žemaitijos pienas“.

Results. Lithuanian dairy market can be characterized as oligopoly with four largest companies capturing 2/3 of the market. Because of big competition in local market, profitability of dairy companies is below average. That’s why companies in sector generate most of the income from foreign markets. One of four industry’s biggest companies generated more than 50 percent in home market. During the years of economic crisis dairy sector shrunk by 15 percent and that is reflected in economic values of dairy companies. Indicator of Economic Value Added was negative for all four largest Lithuanian dairy sector’s companies after local consumption fell and economic situation in Russia and European Union countries, which import dairy products from Lithuania, worsened. Linear regression analysis showed that gross profit margin and interest rates had most significant effect to Economic Value Added, while change in prime cost of purchased milk and productivity per employee did not affect any of four dairy company’s economic value. The trend line function showed that during 2013-2015 all four company’s economic value should rise as economic situation in Lithuania and other dairy importing countries improves.

The theoretical contribution. Economic crisis, which reached Lithuania in late 2008, showed that underestimation of risk and mismanagement of recourses can have dire consequences for company’s performance. Standard financial ratios aren’t enough to value state of a company. That’s why different measures of valuation are required. The indicator of Economic Value Added, which evaluates not only the return of investment, but also the cost, is among key indices used in economic analysis.

Practical implications. This research can be used as a groundwork for further evaluation of economic value. It supports the stance, that new methods of economic value’s measurement should be used. Paper also displays which factors affect economic value of companies in Lithuanian dairy industry and other similarly structured industries. Methods used in this research paper can be enhanced to measure economic value of other industries.

Keywords: Economic Value Added; dairy industry; gross profit margin.

Paper type: Research paper.


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