Academy of Accounting and Financial Studies Journal (Print ISSN: 1096-3685; Online ISSN: 1528-2635)


Financial Return on Equity (Froe): Case of Colombian Industrial Companies

Author(s): Elias Tovar, Pablo Arana

The objective of this article was to propose a new and more simplified decomposition of DuPont's analysis under exclusively financial criteria to aim not only at improving profitability, but also cash generation. For this, I used a methodology with a transversal and non-experimental quantitative approach, using inferential statistical techniques to find the relationship between the variables. The sample corresponded to the financial statements of 35 industrial companies listed on the Colombian Stock Exchange. The proposed model considered the following elements: (a) net profit (NP), (b) equity (E), (c) sales (S), (d) Total Assets (TA), (e) Depreciation and Amortization (D&A ) and and (f) EBITDA. The results indicated that elements such as EBITDA / S, S / TA, TA / E, [(NP + D&A) / EBITDA] are sufficient and adequate to verify the profitability of the various companies studied as well as their cash generation. Finally, in the companies analyzed, the most important indicators in the FROE are the TA / E, [(NP + D&A) / EBITDA] and the S / TA, therefore it is the ones that should be focused on for making financial decisions.

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