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Measuring The Performance Of Equity-Share Schemes In South Africa: A Focus On Financial Criteria

BASIS CRSP working paper, School Of Agricultural Sciences And Agribusiness, University Of Kwazulu-Natal, June (2004)

This study aims to develop a robust methodology for measuring financial performance of equity-share schemes. Several studies have investigated various aspects of performance of these schemes but no single study has yet measured their performance using an objective set of criteria. Four categories of objective criteria are proposed for measuring performance: poverty alleviation; empowerment and participation; institutional arrangements and governance; and financial performance. This paper focuses only on the financial performance criteria. Recognised indicators of financial performance are applied to data taken from balance sheets and income statements provided by four equity-share schemes in the Western Cape. This analysis highlights problems with several of the conventional ratios used to measure profitability, solvency and growth when they are applied to recently restructured farming enterprises whose ‘empowerment’ status attracts extraordinarily high levels of debt capital to finance long-term investments. To avoid these problems it is recommended that, for equity-share schemes, profitability should be measured by the return on assets or dividend return; solvency by the debt:asset ratio; liquidity by the current ratio; growth by changes in the (estimated) real price of shares; and workers’ earnings by changes in the sum of the real wage bill, capital gains, dividends, interest and other benefits accruing to workers in aggregate.

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