Knowing business profitability is essential for any SME, since it is the data that relates the results obtained with the resources used at all times. However, in order to know the profitability of a company, the company’s ROI, ROE and ROA must be known.
From W&K Financial Education they explain that ROE refers to the financial profitability of the company. Specifically, this indicator relates the returns or net profits with the resources that the company needs to obtain profitability.
Experts indicate that this indicator is important in any investment, since it affects the ability of a company to generate profits with respect to its shareholders. To know if the company is well positioned at the level of profitability, the ROE must be higher than the minimum return required from the shareholder. In the ROE, the financed profitability is obtained solely from own resources.
The ROA, on the other hand, has to do with the return that the company obtains for the investments made. For a business to be profitable, ROA must be greater than 5%. Some companies, such as financial companies, use ROA to determine the viability of the company. This is the indicator that adds value in a much more generalized way to the company.
Finally, ROI expressly refers to the return obtained in the company with an investment. In this case, this indicator allows to know what is the capital that a company lost or gained with the investments it has made.
Companies use it to determine if the company is obtaining good results or, for example, to analyze if the projects that are being developed in the company are bringing benefits to the company. ROI is characterized by making use of all assets to achieve profitability. For companies it is important to obtain high levels of ROI, since this will mean that you will be obtaining higher returns on your asset.