The value of the financial profitability rating is a measure of the financial profitability level of the company. A higher value of the rating will indicate a higher rate of financial profitability.
The following table can serve as a reference for the use of this rating & colon;
|Rating value range||Interpretation|
|0 - 0||Absence of financial profitability||0 - 5||Very low financial profitability|
|5 - 6||Low financial profitability|
|6 - 6||Average financial profitability|
|6 - 7.5||High financial profitability|
|7.5 - 10||Very high financial profitability|
The financial profitability, also called return on equity (ROE), is a measure of the profitability obtained with the company's own funds (equity). It is a measure of the profitability closest to the shareholder that the economic profitability (measured with the profitability rating), which considers the profitability of the company regardless of how its assets are financed.
The traditional way of calculating this financial profitability is simply by dividing the net income among the equity of the company. gradement uses its own more sophisticated algorithm to calculate this magnitude much more accurately.
For the financial profitability calculation Gradement uses a combination of the following accounting variables:
And for the financial profitability rating calculation Gradement compares the economic profitability with the:
From an assets point of view, economic profitability can be defined, as we have already seen, considering the funds generated by the company's assets, regardless of how they are financed. It is also possible to see this magnitude from the point of view of liabilities. From this point of view, the profitability can be seen as the remuneration that the company can distribute to all the owners of the capital, that is to say, all sources that finance the company assets.
To understand the difference between economic profitability (measured with the profitability rating) and the financial profitability (measured with the financial profitability rating we have to consider this profitability from the point of view of liabilities. While the economic profitability measured the potential remuneration to all the finanicing sources of the company's assets, the financial profitability only considers in its calculation the potencial remuneration to the holders of the equity of the company (shareholders).
The economic and financial profitability are both related by the financial leverage (measured with the external financial non-dependency rating), so that: