DETAILED MODEL FOR EQUITY PROFITABILITY ANALYSIS WITHIN THE CONTEXT OF THE ENTERPRISE’S FINANCIAL EQUILIBRIUM
Abstract
In the conditions of market economy, each enterprise independently
ensures its own profitability, organizes its business in a way allowing it to achieve positive
financial results, high efficiency, economic growth and financial stability.
The starting hypothesis of this study is that at certain time each enterprise is in an
equilibrium position depending on the structure of its capital and assets. Different ratios
between capital elements (equity and borrowings) and asset elements (fixed and shortterm assets) form different meanings of indicators that characterize the financial stability,
profitability and liquidity of each enterprise. It is in an equilibrium position depending on the
respective combination of these indicators’ meanings. The starting point here is the
assumption that the amount of enterprise’s equity is sufficient to finance its production
assets (fixed tangible assets and short-term assets that are supposed to be non-monetary
assets), and that its monetary assets are used to cover all of the enterprise’s liabilities.
This report studies the equity rate of return. The owner’s capital amount is
considered an element of the financial equilibrium and a factor for its achievement. To this
end, a detailed model for equity profitability analysis is presented, which allows analyzing
the impact of a system of factors characterizing different aspects of the company’s
business which are of crucial importance to achieve and maintain a financial equilibrium
position.
References
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