8. COMPARATIVE ANALYSIS

8.1. Relative importance of costs and values

The estimates of fisheries subsidies that we made above represent important information but to better assess their significance the values need to be compared with something. The industry value of a subsidy could, for example, be put in relation to the total sales value for the part of the industry it affects, or the total government expenditure on fisheries subsidies could be expressed as a percentage of the total added value created by the fisheries sector^[16] and compared with similar ratios for other sectors.

Which ratios that should be calculated depend of course on the objective of the analysis, e.g., should the fisheries subsidies be compared with other sectors of the economy or with fisheries in other countries, or should the development - increases or decreases in different categories of fisheries subsidies - over time be measured? Some examples of ratios that could be calculated are listed below. The ratios can either be calculated for the fisheries sector as a whole or for different subsectors or groups of firms, depending on the scope and objective of our study.

Government expenses (revenues)

- Government costs (revenues) divided by the number of employees in the fisheries sector, selected subsectors or groups of operators.

- Government costs (revenues) divided by the value added created by the sector or subsector.

- Government costs (revenues) divided by the value of production (turnover) of fisheries industry or part of it.

- Government costs (revenues) divided by ex-vessel value of landed fish.
Change in industry profits

- The industry value of the subsidies divided by the total profit/loss (before or after tax) of the fisheries industry, selected subsectors or groups of operators.

- The industry value divided by the ex-vessel value of landed fish.
- The industry value (change in profits) divided by the value added created by the fisheries sector, selected subsectors or groups of operators.

Box 20: Ratios - An example

In Seidisbus, the following ratios are calculated in the fisheries subsidies study:

1. Government cost (all subsidies) divided by the total number of employees in the fisheries sector: 5 353 750 (from Figure 9)/16 560 (from Box 18) = US$ 323 per employee.

2. Government cost (only Categories 1 and 2 subsidies) divided by the total number of employees in the fisheries sector: 2 418 750 (from Figure 9: 5 353 750 - 2 900 000 - 35 000)/16 560 = US$ 146 per employee.

3. Government cost (excluding subsidies for aquaculture) divided by the ex-vessel value of catches: 4 583 750 (from Figure 9: 5 353 750 - 770 000)/75 000 000 (from Box 18) = 6%.

4. Industry value (all subsidies) divided by the ex-vessel value of catches: 7 053 750 (from Figure 9)/75 000 000 = 9%.

5. Industry value (subsidies only for shrimp fishery) divided by profits before tax of the shrimp fleet: 2 316 300 (from Box 19)/6 300 000 (from Box 19) = 37%.

8.2. Financial ratios

In addition to the more general ratios discussed above, we may also want to make further use of the results of the costs and earnings analysis. Based on the calculations made on the income statements - discussed in chapter 7 above - we can calculate financial ratios and in this way evaluate the economic performance with and without subsidies. Depending on our sample size and the number of subsectors that we have included in the costs and earnings analysis, average ratios for different parts of the industry can be estimated and assessed. Some of the ratios to calculate could include:

Gross margin
Profit margin (return on sales)
Internal Rate of Return (IRR)
Return on investments

It would also be interesting to examine the change in financial strength and solvency ratios but as the longer-term impact of the subsidies on the firm is not known, this would be difficult to do in any reliable way. The financial strength and solvency ratios are based on information from the balance sheet and in order to make any meaningful assessment, the balance sheet would need to be adjusted for subsidies in the same way as the profit and loss account. The latter is a shorter-term reflection of the business and it is easier to make adjustments with an acceptable level of reliability. The balance sheet is the long-term account of the business’s transactions. To adjust the balance sheet for the effects of subsidies would involve, in addition to analysing the history of the direct effects of subsidies, speculations with regard to overall investment and business decisions triggered by the indirect effects of subsidies in the past. In fact, in line with this discussion, also the last profitability ratio suggested above, i.e., return on investments, could be questioned with regard to its reliability as it uses total assets - a balance sheet item - as the denominator.

Box 21: Financial ratios - An example

Using the information for the shrimp fishery in Seidisbus (Box 19), the following financial ratios can be estimated:

1. Return on sales

Actual account: 6 800 000 (net income before interest expenses: 6 300 000 + 500 000) divided by 35 000 000 (sales) = 19%.

Account less subsidies: 4 483 700 (net income before interest expenses: 3 983 700 + 500 000)/34 779 600 (sales) = 13%.

2. Return on investment

Actual account: 6 800 000 (net income before interest expenses: 6 300 000 + 500 000) divided by 48 000 000 (book value of total assets assumed to equal current replacement value of vessels) = 14%.

Account less subsidies: 4 483 700 (net income before interest expenses: 3 983 700 + 500 000)/48 000 000 (book value of total assets assumed to equal current replacement value of vessels) = 9%.

^[16] The added value created by the fisheries sector is often referred to as the GDP of the fisheries sector.