Developing a Financial Sustainability Index (FSI) for Export-Oriented manufacturing firms: A Panel-Based Early Warning Framework

Abstract

This study explores how profitability, export efficiency, and cost functionality correlated with the financial sustainability index (FSI) for Indian manufacturing companies and the development of the early warning system. The study was conducted on 50 Indian manufacturing companies those participate in the export business, whose data has been collected for the nine quarters from 2023 till 2025. A composite FSI was developed by integrating three selected financial indicators: profitability, cost efficiency, and export efficiency (intensity). Three econometrics approaches used for the analysis are named pooled correlation, within-firm (fixed-effect), and between-firm (mean-level) to capture both intra-firm and inter-firm (long-term and short-term) correlation between the financial indicators and FSI. The findings indicate that export efficiency is the most reliable indicator of financial sustainability (FSI), with an almost perfect positive correlation value (r = 0.9992) with FSI. Although cost efficiency shows a negative correlation (r = -0.5664), profitability shows a moderately positive correlation (r = 0.3020), suggesting that export-oriented businesses retain higher costs in order to remain competitive. This study offers novel viewpoints on the dynamic relationship between export performance, cost efficiency, and financial sustainability in developing economies by using a panel-based FSI approach that captures both firm-specific and time-based fluctuations.