Financial Strategies on Business Profitability

Batrancea, Maria, Iliesi, Sabin, Review of Business Research

ABSTRACT

In this paper, the authors highlight the factors that influence the profitability of own capitals of an entity. In this sense, the authors refer to three decisive factors: profit quota, the rotation speed of the assets and financial leverage.

Key words: return on equity, financial standing, financial strategy

1. INTRODUCTION

Financial market represents the place where the enterprises joining this market obtain a part of their funds and evaluate their financial standing. Any enterprise with access on the financial market and stock market, may publicly present its financial standing in the annual reports.

But, in any situation, the enterprise cannot be indifferent to the functioning of the financial market and by the conditions of its own shares. The most important issue for every manager, is the communication with the financial market. The staff of the enterprise has to inform permanently the financial world through annual reunions, in order to present the results, by publishing communicates regarding the essential events of its economic life etc, so that its identity and notoriousness should be well assessed on the capital market, adopting either an offensive financial strategy, or a defensive financial strategy.

On the financial market, the enterprise may adopt an active financial strategy, not only for accomplishing financial operations, but also for ensuring its external growth through operations of absorption, fusion, amalgamation and control. The title of the enterprise thus becomes a trading item, a political instrument towards third parties, market. The operation is more favorable if the rate of the title is higher.

But, the accomplishing this offensive financial strategy implies achieving certain financial performances in growth, reknown by the market and with an acceptable risk rate.

A defensive financial strategy signifies an attitude of the enterprise that maintains relations with the market in order to be able to permanently request obligations issues and, in certain circumstances, of making an increase in own capital. In this case, the market plays the role of funds "genrator"; the enterprise does not attempt to act for changing it, but defends only its independence and control structure. …

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Publication information: Article title: Financial Strategies on Business Profitability. Contributors: Batrancea, Maria - Author, Iliesi, Sabin - Author. Journal title: Review of Business Research. Volume: 7. Issue: 1 Publication date: January 2007. Page number: 118+. © 2008 International Academy of Business and Economics. COPYRIGHT 2007 Gale Group.

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