The Impact of Financial Warning Signal on Profitability of Agricultural Cooperatives in Thailand

Abstract

    The financial warning signal of the Cooperative Auditing Department was the instrument for assessing the financial health of the agricultural cooperatives to facilitate proactive responses to potential crises. Therefore, the objectives of this research were: 1) to study the financial status and operating performance of the agricultural cooperatives in Thailand; and 2) to study the impact of financial warning signal ratios on the profitability the agricultural cooperatives in Thailand. The variables were identified as follows: The independent variables were the debt-to-equity ratios, reserve-to-asset ratios, return on assets ratios, operating expense to profit before operating expense ratio and inventory turnover ratios. Moreover, the dependent variable was the profitability. This research was quantitative research. The samples were 4,853 cooperatives focusing on the agricultural cooperative in Thailand during the period from 2019 to 2021 by a purposive sampling method. The research instrument consisted of a worksheet validated by RSU Ethics Review Board and data gathered from the Financial Information Services System for Cooperatives by the Cooperative Auditing Department, and analysed the statistics including frequency, percentage, mean, median, standard deviation, minimum, maximum, correlation analysis and multiple regression for data analysis. The research findings indicated that the financial status of agricultural cooperatives tended to remain relatively stable. However, the operating performance revealed a trend of overall income and expenses decreasing from 2019. The research findings on the influence of the financial warning signal ratios on the profitability of agricultural cooperatives found that the agricultural cooperatives with higher reserve-to-asset ratios and return on assets ratios experienced improved profitability. On the other hand, if the agricultural cooperatives had higher operating expense to profit before operating expense ratio, it resulted in decreased profitability. However, the debt-to-equity ratio and inventory turnover ratio did not affect the profitability of the agricultural cooperatives. Thus, this information can be used as a guideline for monitoring potential financial crises that may occur within the cooperative. It also encourages the implementation of financial management in various aspects of the cooperative, such as managing funds, assets, income, and expenses, to maximize profits and ensure the sustainable existence of the agricultural cooperative.