KEY FINANCIAL INDICATORS AND MODELS FOR ASSESSING BUSINESS PROFITABILITY
KEY FINANCIAL INDICATORS AND MODELS FOR ASSESSING BUSINESS PROFITABILITY

Summary/Abstract: The article examines the profitability or business return as an important object of modern financial and business analysis. The main profitability indicators are characterized and some specific features related to their correct determination are clarified. A scheme of the organization of the analysis on the topic is presented, including two main types of analysis - comparative analysis, including benchmarking and analysis of the influence of the main factors. Several different models of analysis with the greatest practical significance are presented. The following two models are explained in more detail: 1) Model for analyzing the Return on assets (ROA), mathematically representing the relationship between efficiency and profitability of the business. Business efficiency depends on the ratio between operating expenses and sales revenue and affects the amount of operating profit. The model is an important tool for corporate management, which supports decision-making related to sales management and optimization of processes and costs. The goal is to achieve sustainable sales growth and increase the operating profit margin, which in turn increases profit and ROA; 2) Steward's model for analyzing the Return on invested capital (ROIC) and Economic Value Added (EVA). The model builds on the conventional approach to profitability analysis by introducing a criterion for a profitable business - the cost of capital. This approach makes it possible to link the profitability of the business with the value of the company, which is of paramount importance for corporate management and investors. In conclusion, the results of the study are summarized and conclusions are drawn regarding the benefits for analysts, management and other stakeholders.

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