THEORETICAL PROPOSAL FOR EXPANSION OF ROE WITH NEW SUB-RATIOS

• Main Author: Danilo Dorović
• Format: Article
• Language: English
• Published: Juraj Dobrila University of Pula 2017-09-01
• Series: Review of Innovation and Competitiveness
• Subjects: ROE; Market share; Assets; Liabilities; Breakeven point
• Online Access: https://hrcak.srce.hr/file/276036
• ISSN: 1849-8795; 1849-9015

ROE is the ratio of profitability which can be separated into three ratios in Du Pont model. The question is - can it be even more comprehensive with more than three Du Pont ratios; that is can it also include liquidity, market share, break-even point, plan vs. actual, structure of assets and liabilities, structure of fixed costs, etc.? If these can be included in calculation, the financial, management accounting and strategic analysis could be more integrated into one more rounded system. Financial ratio analysis would also integrate into one ratio the usually different areas of analysis, like structure of assets, structure of liabili-ties, liquidity, turnover, financial leverage, etc. Strategic management and management accounting ratios, developed in the literature and used in business practice, are represented. The article in front of you presents a theoretical proposal through deduction method of how mentioned measures can potentially be included in ROE, resulting in potential benefits in planning and controlling. Integrated different areas of financial ratio analysis, manage- ment accounting and strategic analysis each represented with its ratios in profitability measure ratio, provides potentially better view of conditions, profit multiplicators and risk the profitability is achieved by. Integration inside profitability measure gives a special qual-itative advantage, having in mind that achieved profit is the main goal for owners of the company`s equity.