The Possibilities of Difference Analysis Utilisation in Profit Rate Assessment

  • Marie Vejsadová Dryjová University of South Bohemia in České Budějovice
Keywords: Return on Equity ROE, Pyramidal Decomposition, Functional Method


The main aim of this article is the application of selected methods of difference analysis to the chosen profit indicator of Return on Equity (ROE). First, the importance of the ROE indicator is described in the paper and then, also, the possible methods of pyramidal decomposition in multiplicative structures – ie. the method of gradual changes, the decomposition method with residue, the logarithmic method and the functional method. The pyramidal decomposition of the ROE top indicator is implemented using the functional method, the only one that can be used in the case of a negative volume index indicator and, at the same time, this method is not sensitive to the order of the factors. In conclusion, the assessment of the impact of partial analytical indicators of pyramidal decomposition on the top analysed indicator of ROE is accomplished. The degree of various influences of sub-indicators on the ROE top indicator, in the analysed periods, was different. The ROE indicator was most affected by the Sales Profitability indicator on the second level of decomposition. In the first and last assessment periods, the Sales Profitability indicator was determined by the Cost Efficiency indicator, in the first, and in the second period, by the cost of sales indicator. The partial factor Financial Leverage affected the ROE the least within the assessment period.  The Tax Earnings Reduction indicator following the Interest Earnings Reduction indicator presented the stronger influence on the ROE after the Financial Leverage indicator.