The Relationship Between Financial Indicators and Financial Performance: A Panel Data Analysis

Abstract

This research investigates the correlation between financial indicators and financial performance in non-financial entities in Turkey, emphasizing Return on Assets (ROA) and Return on Equity (ROE) as principal performance metrics. This research employs panel data analysis from 2012 to 2022 to examine the impact of liquidity, leverage, cash flow, market-related variables, and asset efficiency on financial performance. The results indicate that the Current Asset to Total Asset Ratio (CATTAR), Debt-to-Asset Ratio (DTAR), Free Cash Flow per Share (FCFS), and Market Capitalization (MC) significantly influence financial performance. In contrast, Market Value (MV) and Total Asset Turnover (TAT) exhibit minimal or adverse effects. The findings demonstrate that effective liquidity management and regulated leverage improve financial performance, but excessive debt significantly diminishes equity returns. Moreover, free cash flow is essential for financial flexibility, facilitating sustained expansion. Unexpectedly, an elevated Total Asset Turnover does not inherently enhance financial success, indicating operational inefficiencies in the exploitation of charity assets. The paper advises charitable organizations to maximize liquidity, adopt risk-sensitive loan management, improve cash flow efficiency, and use market credibility to bolster financial sustainability. Moreover, augmenting financial openness and data-driven decision-making may bolster long-term stability and stakeholder trust. The study is based on a panel dataset comprising 133 nonprofit organizations in Türkiye, observed over the period 2012–2022. This inclusion strengthens the empirical foundation of the analysis and supports the generalizability of the findings within the nonprofit sector.