Peculiarities Of Quantitative Assessment Of Business Financial Success Factors

Abstract

The success of any business is largely assessed by the return on equity indicator. Analysis of this indicator in the context of aggregated groups of factors gives an enlarged estimate of the reasons for its specific value at each time. However, a detailed estimate (which takes more factors into account) may not match an enlarged estimate. The impact of each factor on the change in the return on equity is evaluated based on its qualitative certainty, in particular, on the signs of extensiveness or intensity. A rational combination of these features largely determines the effectiveness of management decisions to achieve the desired level of return on equity. The category of return on capital, all other things being equal, is identified as an intensive factor of financial efficiency. However, the quantitative expression of this category in the form of a specific indicator, for example, the annual return on capital is determined by both an intensive factor (the average daily level of business activity) and an extensive factor (the number of working days per year). In other words, aggregated intensive factors may include an extensive component. In financial management, it is often used to estimate the value of return on equity in the context of three aggregated factors that appear in the well-known DuPont formula. Aggregation and unbundling of these factors may change the assessment of the ratio of reasons that led to a particular level of return on equity when the level of detail of the analysis changes.