To be profitable, for a firm, is to be able to fulfill the promise of performance made to investors, thus to release a profitability of invested capital superior to what the market offered in the same category of risk.

The economic result measures profitability by subtracting the cost of capital (yield offered by the market) from the return generated by the industrial tool (return on capital employed). This level of performance is calculated in relative (percentage) and absolute (currency units), and a positive figure reflects the firm’s ability to outperform the market, which should allow it to attract investor funds, which positively impacts the liquidity of its industrial strategy.

The module shows how to calculate this key indicator and how to use it, but also the risks of misuse.

Exercise related to the video

Once you’ve watched the video, you can do an exercise to practice what you’ve just learned and assess your understanding of the assessment.

The balance sheet introduces the concepts of capital employed, including fixed assets and working capital, and financial resources (equity and net financial debt), and then introduces the issue of liquidity, which is central to the firm’s financial policy.

Test related to the video

Once you’ve watched the video, you can take a test to evaluate what you’ve just learned and assess your understanding of evaluating the financial performance of a business.