THE IMPACT OF SELECTED FINANCIAL RATIOS AND GROSS DOMESTIC PRODUCT ON THE PERFORMANCE OF ADVERTISING INDUSTRY – A CASE STUDY FROM CROATIA

In our study, we explore the financial performance of companies in advertising industry in Croatia, depending on internal factors and overall economic conditions. Internal factors are represented by financial ratiosof liquidity, leverage and activity, and economic conditions bythe selected macroeconomic variable. Financial ratios used in this research areCurrent ratio (CR), Debt ratio (DR) andTotal Asset Turnover (AT),and macroeconomic variable isGross Domestic Product (GDP). The performance of the companies is measured by Net Profit Margin (NPM). The idea behind this research is based on the fact documented in the literature that some companies see marketing costs as an investment, andnot only do not cut their spending on marketing in times of economic downturn, but even increase it. If many companies behave this way, this should reflect on the profitability of companies in advertising industry, witha negative relationship between GDP and their profitability. The population of this study is comprised of all the companies operating in Croatia whose main activity is promotion. According to National Classification of Activities (NACE Provisions 2007) the mentioned activity is classified in the section M 73 - Advertising and market research, and this section includes advertising agencies (M 7311), media advertising companies (M 7312) and market research companies (M 7320). The financial ratios for those companies were measured from 2009 to 2018. A multiple regression model was used and secondary data were analyzed. Among the four independent variables, only AT does not show the significance on NPM. The results of multiple regression analysis show that DR, CR and GDP have significant correlation with the financial performance of promotion companies in Croatia; DR and GDP are negatively correlated,while CR is positively correlated to the industry performance measured with NPM. The contribution of this paper is twofold: on one side, it contributes to the literature dealing with the impact of financial ratios and macroeconomic variableson financial performance, on the other side it contributes to the literature that studies the relationship between marketing costs and economic activity.