The Influence of Financial Flexibility on Enterprise’s Profitability in the Future

Abstract

With the increasing uncertainty of the contemporary economic market economy, its importance has become increasingly prominent in practice. In order to study the influence of financial flexibility on the enterprise's future profitability, this paper uses factor analysis to measure the enterprise's comprehensive profitability index, and uses two single indicators to measure the enterprise's financial flexibility. Then the effect of financial flexibility on the profitability of nonferrous metals listed companies is examined by using the bidirectional fixed effect model. The empirical results show that the influence of financial flexibility on profitability has a lag effect; Financial flexibility has a positive correlation with corporate profitability, that is, companies with relatively large financial flexibility have relatively greater profitability, and companies with relatively small financial flexibility have relatively small profitability. Keywords—Financial flexibility; Future profitability; Factor Analysis; Bidirectional fixed effect model