Archive of Journal - Financing

Financing – scientific magazine for economy

ISSUE 2021, No. 3, Article 5, Year of publication: 12, September, 2021
Analysis of profitability factors of companies in the Republic of Srpska


Dragan Janjić, MSc*, Miloš Grujić, PhD**

*The University Clinical Centre of the Republic of Srpska, 
**The Pension Reserve Fund of the Republika Srpska




The generally accepted goal of a company’s finances is to increase the value of the company’s shares in the long run. Therefore, profit maximization is only one component of that goal. In this context, the value of equity cannot be preserved so that the yield is higher than the infl ation rate but to compensate for the opportunity cost of the owner’s investment. Accordingly, the focus of the work is on one of the indicators of company performance with the aim of maximizing profits for owners – ROE (Return on equity). In this context, the decomposed ROE clearly shows the company’s management five main factors of profi tability, namely: management performance in cost management (cost-effectiveness), management performance in asset management (effi ciency), management performance in capital management (smart financing), management performance in debt management and management performance in tax management. Within the research part, we observed ROE as an indicator of profi tability factors of companies in the Republic of Srpska. The aim of the research is to decompose ROE in companies in the Republic of Srpska into fi ve main aggregate parts. The main research question is: is ROE an indicator of profitability factors for companies in the Republic of Srpska? In that context, we observed a total of 107 companies in the Republic of Srpska for 2019 and 2020. After the statistical processing and analysis of the obtained data, based on the fi ve main profi tability factors of companies in the Republic of Srpska, as a result of the research we formed an econometric model. ROE is defi ned as a dependent variable in the model, while the following are defi ned as independent variables in the model: tax burden, indebtedness factor, operating profit rate, total assets turnover ratio and capital multiplier. The claims, facts and results presented in this paper will be useful to students as well as academic researchers, theorists and all investors and other participants in the fi nancial market of the Republic of Srpska.

Keywords: ROE, profitability, cost-effectiveness, indebtedness and tax management

DOI: 10.7251/FIN2103053G

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