Innovative and traditional companies: the main definitions and comparisons

Abstract

In the complex business environment companies seek for new forms of successful operations, where innovations become very important success factor for business development. However, innovative activities might affect financial performance of a company in two ways: by increasing expenditure for re-quired investments and by increasing income due to inflows generated by new innovative products. Reffering to this context, the article examines financial performance of companies that are classified as innovative in comparison to traditional companies. The research is based on the determined characteris-tics of innovative companies, such as performance of research and development activities, technology commercialization, organizational flexibility, focus on market needs, specialization, integration of exist-ing knowledge and experiences, ability to reshape industry standarts, integration of different innovation aspects, investment into production and commercial processes, investment in employees’ training and de-velopment, concentration on knowledge sharing, innovative infomation transfer, emphasis on environ-mental and social problems, which enabled to select innovative enterprises from the top 300 companies in Lithuania. Various financial ratios (such as return on equity, return on assets, gross, operating and net profit margins and net debt) were analyzed for the two groups of companies and compared to determine whether innovations lead to better financial performance of a company, especially during economical downturn cycle. It was determined that profitability ratios selected for the research are significantly high-er in the group of innovative companies as compared to the sample of traditional enterprises.