The Importance of Financial Profitability on the Activity of a Company

Abstract

The financial rate of return is a financial analysis indicator with an important role in assessing the economic and financial performance of an enterprise. Thus, if the economic rate of return expresses the return on invested capital only from the point of view of the operating activity, the financial rate of return does nothing more than to quantify the return on capital. If we start from the consideration that the financial rate of return expresses the efficiency of the equity capital of an enterprise, we realize that it has a major importance for the shareholders of that enterprise because they can see the effect of the investments made in that enterprise, if these investments are profitable and if they will still be interested in participating in the development of the enterprise, even through new investments. The purpose of the paper is to highlight the importance of financial returns in various situations, as exemplified, and the impact on both the company and the shareholders.

Keywords

• financial profitability
• profit
• capital
• total assets
• income