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Profitability Ratios in Risk Analysis

In: Contemporary Trends and Challenges in Finance

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  • Anna Rutkowska-Ziarko

    (University of Warmia and Mazury in Olsztyn)

Abstract

The aim of the study was to examine the correlation between the accounting profitability of the company and its rate of return on the capital market. In addition, betas and accounting betas were compared. The correlation between total variability and semi-variability of profitability ratios and rates of return was also analysed. The risk of a company was considered in variance and downside approaches. For calculating the downside risk, both the Bawa and Lindenberg formula and the Harlow and Rao formula were used. A positive correlation between the average value of the quarterly profitability ratios (ROA and ROE) and the average quarterly rates of return on the Warsaw Stock Exchange was identified. Similarly, companies with higher volatility and semi-volatility of the profitability ratios were simultaneously characterized by larger fluctuations in rates of return on the stock market. The correlations between market betas and accounting betas were statistically significant only in a downside approach. Accounting profitability had a greater effect on the rates on return and the risk for large and medium companies compared to small ones.

Suggested Citation

  • Anna Rutkowska-Ziarko, 2020. "Profitability Ratios in Risk Analysis," Springer Proceedings in Business and Economics, in: Krzysztof Jajuga & Hermann Locarek-Junge & Lucjan T. Orlowski & Karsten Staehr (ed.), Contemporary Trends and Challenges in Finance, pages 77-88, Springer.
    • Handle: RePEc:spr:prbchp:978-3-030-43078-8_7
    DOI: 10.1007/978-3-030-43078-8_7
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    Cited by:

    1. Marek Szturo & Bogdan Włodarczyk & Ireneusz Miciuła & Karolina Szturo, 2021. "The Essence of Relationships between the Crude Oil Market and Foreign Currencies Market Based on a Study of Key Currencies," Energies, MDPI, vol. 14(23), pages 1-17, November.
    2. Anna Rutkowska-Ziarko & Lesław Markowski, 2022. "Accounting and Market Risk Measures of Polish Energy Companies," Energies, MDPI, vol. 15(6), pages 1-21, March.
    3. Skrynkovskyy, Ruslan & Pavlenchyk, Nataliia & Tsyuh, Svyatoslav & Zanevskyy, Ihor & Pavlenchyk, Anatoliі, 2022. "Economic-mathematical model of enterprise profit maximization in the system of sustainable development values," Agricultural and Resource Economics: International Scientific E-Journal, Agricultural and Resource Economics: International Scientific E-Journal, vol. 8(4), December.

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