Analysis of the Financial Performance in the Slovenian Tourism Economy tanja planinc University of Primorska, Slovenia štefan bojnec University of Primorska, Slovenia saša planinc University of Primorska, Slovenia This paper aims to analyze the difference in financial performance of the different tourism economy activities in Slovenia. The analysis was performed for the period 1995-2009. We analyzed the financial indicators on the basis of the official company accounts data. The nominal financial data are deflated by the statistical deflator for value of inflation in order to obtain real values of financial indicators over the analyzed years. We included financial indicators that are related to the business performance of enterprises in the Slovenian tourism economy. The research hypothesis was tested using quantitative analysis employing non-parametric Kruskal-Wallis test and Wilcoxon-Mann-Whitney test of the secondary data used. The empirical analysis confirmed that there are significant differences in financial performance among different tourism economy activities in Slovenia. Key words: financial analysis, financial performance, hypothesis testing, tourism economy, Slovenia Introduction Tourism as an economic activity has been an emerging economic and social phenomenon of the late 20th century and is one of the largest global economic activities. Therefore, countries regardless level of economic development, political orientation and cultural diversity, emphasize the development of tourism as a strategic development orientation (Cvikl and Fabjan 2004, 1). Tourism is a phenomenon that is, in contrast to most other activities, in the basic definition defined in terms of demand, although there are many definitions, which define tourism from the supply side, or as a tourist economy or industry. The concept of a tourism economy in this case includes all activities which produce goods and services to meet the needs and desires of tourists (Cooper et al. 1998, 9; Vanhove 2005, 29). The previous studies show that tourism at the international level, or at least in Europe, creates a net distribution of wealth from north to south and from richer to poorer countries, thereby contributing to the convergence process (reducing disparities). From a regional perspective, tourism by its nature acts as a tool of the development of less developed regions and so contributes to reducing regional economic disparities (Proenga and Soukiazis 2008, 792). In this paper our focus is on the analysis of the role of tourism in the economy and particularly on the statistical analysis of the financial performance indicators in the Slovenian tourism economy. The Role of Tourism in the Economy Tourism is one of the fastest growing and one of the most important economic activities significantly contributing to the gross domestic product (gdp) and employment. One of the main reasons why governments promote and encourage the development of tourism worldwide, is that tourism similar to other economic activities has a positive impact on economic growth and development. Tourism also generates jobs and incomes, and in addition, in several countries through tourism are reduced their balance of payment deficits. Tourism is therefore expected to affect the gdp and gdp per capita, which is commonly used as a benchmark for the analysis of the economic development of countries. In addition, the tourism has multiplier effect on many other economic sectors such as transport, trade, construction, agriculture, etc. (Ivanov and Webster 2007, 379; Proenga and Soukiazis 2008, 791). Tourism industry is more broadly defined as one of the world's largest industry and as one of the fastest growing service industries. Due to its labor intensity it is one of the main generators of employment, particularly in remote and rural areas (World Trade Organization 1998). Tourism in the wider sense, which is also covered by the indirect effects, according to the World Travel & Tourism Council (2010), gave employment to over 235 million people in the world, while creating a 9.1 percent of global gdp. Tourism is also important for the Slovenian economy. In 2010, tourism in Slovenia in the wider sense created 117,300 jobs or 13.6 percent of Slovenian employment. If the volume of tourism in Slovenia is presented with a share of gdp, it represented 12 percent of Slovenian gdp or 4,388,000 million eur (World Travel & Tourism Council 2010). Tourism industry is not limited only to hotels and restaurants, because tourism cannot operate without many other sectors of the Analysis of the Financial Performance economy. The complexity of tourism economy itself is also a reason for a wide range of professions available in the tourism sector (Riley, Ladkin, and Szivas 2002, 21). Because of the complexity of tourism economy there exist multiple direct and indirect connections and impacts of tourism on employment in the national economy (Nemec Rudez and Bojnec 2007, 115). Different methodologies are used in order to measure the economic role and impacts of tourism on the economy. There are two generally accepted methodologies: tourism satellite (tsas) accounts and general equilibrium models (cges) (Ivanov and Webster 2007, 380). cges can better capture cross-sectoral and macroeconomic linkages (Zhou et al. 1997, 78). cges are widely used in Australia, the United Kingdom, the United States of America and Canada (Dwyer, Forsyth, and Spurr 2004, 307). With cges it is possible to estimate how the economy of a country responds to changes in policy, technology or other external factors change. cges are useful when assessing the impact of such changes in one part of the economy on the rest of the economy (impact of value added tax on the price of tourist services and perhaps on wages and employment) (Hosoe, Ga-sawa, and Hashimoto 2010, xviii). Blake et al. (2006, 303) stated that cges are appropriate when trying to quantify the macroeconomic and sector effects of changes in tourism demand. tsas represent an important step in the overall assessment of the economic importance of tourism in the economy (Sirse et al. 2004, 5). They are formed as a supplement to the system of national accounts, in which specific areas of tourism could not be fully considered as an independent economic sector (Commision of the European Communities et al. 2001, 3). By using the tsas, the indirect effects of tourism on other sectors of the economy can be estimated (Prodnik and David 2009, 100). A body of literature has developed on the economic importance of tourism in the economy and on the financial performance of tourism entities. A few authors have analyzed the financial performance of different tourism economy activities (Chen 2010; Sariisik et al. 2011; Reichel and Haber 2005; Assaf, Knezevic Cvelbar, and Pahor 2012). Some of them compared the economic impact of tourism and other main tourism economy activities to the national economy (Sariisik et al. 2011; Archer 1995). Some others used cges in order to estimate the economic impact of tourism (Blake et al. 2006; Blake et al. 2008). From a macroeconomic perspective, the estimates of the economic impact of tourism on the economy are still the central focus of studies (Song et al. 2012). Tourism statistics in Slovenia plays an important information role, because among other things it also indicates the level of development of the country. Governments also cannot effectively manage the future development of tourism economy without the full picture of the current state of the Slovenian tourism economy (Cvikl and Fabjan 2004, 2). In Slovenia there are several organizations involved in statistical monitoring of the tourism economy. These organizations also issue various publications on this topic. Due to lack of comparability of statistics with other countries and international organizations, Slovenia in 1994 took over new classification, which is aligned with international standards (Cvikl and Fabjan 2004, 2). Standard Classification of Activities is a mandatory national standard used for recording, collecting, processing, analyzing, and disseminating data related to the specific economic activity. It is used to determine the classification of business entities for the purposes of official and other administrative databases, and for statistical and analytical purposes (see http://www.stat.si). Standard Classification of Activities covers 21 areas and the tourism economy can be found in four sectors. Hospitality sector can be found under sector Hotels and similar accommodation. The Statistical Office of the Republic of Slovenia is the main producer and coordinator of carrying out programs of statistical surveys. In the field of tourism statistics, the Statistical Office of the Republic of Slovenia collects, processes and disseminates information in the following areas (Gruden 2004): • Accommodation statistics by month. • Arrivals and overnight stays of domestic and foreign tourists. • Monitoring the number of visitors in selected tourist points of interest (museums, art galleries, natural beauties and attractions), swimming pools and casinos. • Monitoring the work of Slovenian travel agencies (the number of one-day and multi-day trips and the number of participants on these trips). • Monitoring of nautical tourism (number of vessels and persons in three Slovenian marinas). • Follow-up surveys of trips by the local population. To illustrate some basic developments in the Slovenian tourism economy, we can see in Table 1 that the number of arrivals and overnight stays is almost constantly increasing over the observed time period. But the number of overnight stays is increasing slower Analysis of the Financial Performance table 1 Arrivals and overnight stays of all tourists in Slovenia, 1995-2009 Year Arrivals Overnight stays 1995 1,576,672 5,883,046 1996 1,657,669 5,832,244 1997 1,823,129 6,384,062 1998 1,798,925 6,295,308 1999 1,749,532 6,056,563 2000 1,957,116 6,718,998 2001 2,085,722 7,129,602 2002 2,161,960 7,321,061 notes Adapted from http://www.stat.si. Year Arrivals Overnight stays 2003 2,246,068 7,502,569 2004 2,341,281 7,588,737 2005 2,395,010 7,572,584 2006 2,484,605 7,722,267 2007 2,681,178 8,261,308 2008 2,766,194 8,411,688 2009 2,722,022 8,302,231 than the number of arrivals. As a consequence the average length of stay is decreasing. For business accounts and financial statements data important is the Agency of the Republic of Slovenia for Public Legal Records and Related Services (ajpes). The ajpes is an indispensable primary source of official public and other information on business entities in Slovenia. It provides data, which are important for a financial analysis of how Slovenian business entities have operated over a longer time period (from 1994 onwards). The ajpes offers access to a database of complete financial statements and the most important financial indicators about companies, cooperatives, sole proprietors and associations (http://www.ajpes.si). Based on the analysis of selected tourism economy activities in the Slovenian economy, we formulated the research hypothesis that there are differences in financial performance among different tourism economy activities in Slovenia. Methodology In order to obtain an answer to our research hypothesis, we analyzed five financial indicators that are related to the business performance of enterprises in the tourism economy on the basis of data provided by the ajpes: net profit or net loss, returns on assets (roa), returns on equity (roe), share of labor costs in total revenue, and total revenues per employee. roa is defined as: net income after income tax . . roa = -----. (l) total average assets It measures the effectiveness of management's use of the organization's assets (Coltman and Jagels 2004, 155). roe is defined as: net income after income tax . . roe = -, , tj-;-—. (2) average stakeholder s equity It measures how each monetary unit of investment by stockholders contributes to net income (Dlabay and Burrow 2007, 129). The analysis was performed for the period 1995-2009. The nominal financial data are deflated to the 1995 as the base year in order to obtain real values of data, which are used in the calculations of financial indicators over the analyzed years. The deflator for value of inflation was obtained from the Statistical Office of the Republic of Slovenia. To confirm or reject our research hypothesis, we used the non-parametric Kruskal-Wallis statistical test. We used this test because the preliminary analysis confirmed that the selected financial data are not normally distributed. With Kruskal-Wallis test is investigated whether samples originate from the same distribution with the same median (Kosmelj and Kastelec 2002, 81). Kruskal-Wallis test is used when comparing more than two independent or not related samples. We therefore tested whether there are significant differences in financial performance among different tourism economy activities in Slovenia. For the empirical analysis, we formed the null hypothesis (ho) and alternative hypothesis (hi): ho Me1 = Me2 = •••= MeK, hi Met = Mej for at least one pair of medians, i = j, where Me is median, while from 1 to K are different tourism economy activities. In the next step we performed the Wilcoxon-Mann-Whitney test in order to find out whether there are statistically significant differences in medians among tourism economy activities in Slovenia. The Wilcoxon-Mann-Whitney test is also a non-parametric statistical test. It is used to test the null hypothesis which assumes that the medians of two independent samples are the same (Jesenko 2001, 361). This is a test that uses an absolute range and their sum (Sagadin 2003, 337). We wanted to find out whether there are statistically significant differences in medians among tourism economy activities in Slovenia. Once more we formed the null hypothesis (ho) and alternative hypothesis (hi): ho Me1 = Me2, hi Me1 = Me2. For the purpose of our analysis, we divided the tourism economy based on Standard Classification of Activities into the following specific tourism economy activities: • Casinos • Hotels and similar accommodation • Restaurants and inns • Ski centers • Cable railway • Travel agencies and tour operators • Marinas We are aware that selected tourism economy activities do not fully represent the entire tourism economy, but they capture the majority of tourism economy activities and therefore the data collected are sufficiently representative. Results and Discussion financial performance indicators Prior to the statistical analysis to test the set hypothesis, we looked at financial results of selected tourism economy activities. Table 2 shows net profit or net loss for selected tourism economy activities and comparisons of these results with the Slovenian national economy as a whole. Net profit or net loss is the difference between total profit and tax revenue (Zaman et al., 2007, 125). The amount of net profit is therefore influenced by the level of income tax. In Slovenia, the tax legislation is unfriendly to business, because tax rates are high (Kosi and Bojnec, 2011). Companies (especially casinos) demand for lower tax rates. In addition, we can see considerable volatility in net profits or net losses over time. Finally, except for marinas, which in 2008 reached a high net profit because of increase in financial income, all other tourism economy activities have faced a steady reduction in net profit (or increase in loss since 2007. Table 3 shows empirical results for calculated roa and roe. Both financial ratio measures are negative, particularly during the economic downturn in 2008 and 2009. As expected owning from income elasticity, the tourism economy activities have experienced even greater downturn with lower values than the Slovenian national economy as a whole. We can see from Table 4 that throughout the analyzed period values of total revenue per employee are significantly higher for travel t« & ■tí Ö cu ffl S E i ž ž ü ¡a .n p « r H en z s Ln co vo c^ co H co Ln co g m rn co co lo lo ■t m m 00 vo co co co VO ^•invoco Ln^o c^MLnc^ (N (N co m vo en co en vo ■^mco lnc^co c^invo ■^■^D^t^LnLnMiN C^ (N vo Ln c^ iN vo co co od c9 co -«t- ln vo Ln c^ iN co iN co c^ c^ Ln c^ c^ vo Ln M vo vo t m co ^ h £ * £ s 1 § a n n a nia e > G ^o « m vo m rn co