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September 2016 (published: 30.09.2016)
Number 3(26)
Home > Issue > The methodology of abnormal profitability evaluation to the purposes of financial stability monitoring
Lvova N. A.
The article is devoted to the methodology of abnormal profitability evaluation for non-financial companies (enterprises). This methodology is justified taking into account the relevant methodological approaches to financial stability monitoring, which are used by architects and regulators of the financial market, being present in the analytical review of financial information institutions. As the analysis of leading international practices in this question shows, insufficient attention is paid to the corporate sector in financial stability monitoring, including with regard to evaluation and analysis of profitability. Thereby, an indicator of abnormal profitability is proposed by the author, which is calculated as the excess of adjusted return on investment over the weighted average cost of capital of the enterprise. The methodology of evaluation and interpretation of this indicator appeals to the concept of economic value added. It is argued that evaluation of abnormal profitability for the corporate sector with the involvement of industry statistics presents the demanded direction of financial stability monitoring. Abnormal profitability monitoring can be carried out on the basis of publicly available data. Besides, the formula for calculating the indicator is adapted to the conditions of emerging markets. Thus, the results of given study have applied value and can be used in analytical justification of macroeconomic policies to maintain financial stability.
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Keywords: abnormal profitability, economic value added, financial stability, financial stability monitoring, national financial systems.
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License
UDC 336.01
The methodology of abnormal profitability evaluation to the purposes of financial stability monitoring
The article is devoted to the methodology of abnormal profitability evaluation for non-financial companies (enterprises). This methodology is justified taking into account the relevant methodological approaches to financial stability monitoring, which are used by architects and regulators of the financial market, being present in the analytical review of financial information institutions. As the analysis of leading international practices in this question shows, insufficient attention is paid to the corporate sector in financial stability monitoring, including with regard to evaluation and analysis of profitability. Thereby, an indicator of abnormal profitability is proposed by the author, which is calculated as the excess of adjusted return on investment over the weighted average cost of capital of the enterprise. The methodology of evaluation and interpretation of this indicator appeals to the concept of economic value added. It is argued that evaluation of abnormal profitability for the corporate sector with the involvement of industry statistics presents the demanded direction of financial stability monitoring. Abnormal profitability monitoring can be carried out on the basis of publicly available data. Besides, the formula for calculating the indicator is adapted to the conditions of emerging markets. Thus, the results of given study have applied value and can be used in analytical justification of macroeconomic policies to maintain financial stability.
Read the full article
Keywords: abnormal profitability, economic value added, financial stability, financial stability monitoring, national financial systems.
DOI 10.17586/2310-1172-2016-9-3-36-41