Improving Profitability Measurement: Impact of Intellectual Capital Efficiency on Return on Total Employed Resources in Smart and Knowledge-Intensive Companies

This paper aims to emphasize the quantification of intellectual capital, not disclosed on the assets side of the balance sheet in the smart and knowledge-based enterprise, because it is very important for the more precise quantification of the profitability ratio, such as the return on assets (ROA)....

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Veröffentlicht in:Sustainability 2023-08, Vol.15 (15), p.12076
Hauptverfasser: Krstić, Bojan, Bonić, Ljiljana, Ra&#273, enović, Tamara, Jovanović Vujatović, Milica, Ognjanović, Jasmina
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container_issue 15
container_start_page 12076
container_title Sustainability
container_volume 15
creator Krstić, Bojan
Bonić, Ljiljana
Ra&#273
enović, Tamara
Jovanović Vujatović, Milica
Ognjanović, Jasmina
description This paper aims to emphasize the quantification of intellectual capital, not disclosed on the assets side of the balance sheet in the smart and knowledge-based enterprise, because it is very important for the more precise quantification of the profitability ratio, such as the return on assets (ROA). For this purpose, the paper suggests the EIC (efficiency of intellectual capital) methodology. It points out the necessity for the new profitability formula, gives methodological solutions for it, and investigates the impacts of intellectual capital (IC) efficiency indicators on traditional and new formulas of profitability in the case of knowledge-intensive and smart companies. The research confirms the importance of improving the profitability measurement in the knowledge economy era, where exists the dominance of intangible assets. It emphasizes the need for the correction of the denominator of the traditional ROA indicator. The comprehensive measurement of the total intellectual capital, especially its non-disclosed component in the balance sheet, provides information for more precise and accurate profitability measurements. The paper points out the issue of improving the traditional financial ratio, such as the ROA. This can be achieved by incorporating the value of intellectual resources, which are undisclosed in the balance sheet, in its denominator. This solution results in creating a new profitability indicator—return on total employed resources (EOR). This EOR indicator is more successful in capturing the enterprise’s intellectual performance compared with traditional profitability ROA indicators. This fact leads to the conclusion that EOR is better profitability indicator especially for smart and knowledge-intensive companies.
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source MDPI - Multidisciplinary Digital Publishing Institute; EZB-FREE-00999 freely available EZB journals
subjects Accounting
Annual reports
Balance sheets
Competitive advantage
Consolidated financial statements
Corporate culture
Current liabilities
Efficiency
Fair value
Financial statements
Goodwill
Human capital
Intellectual capital
Knowledge management
Measurement
Profitability
Stockholders
Sustainability
Useful life
Valuation methods
title Improving Profitability Measurement: Impact of Intellectual Capital Efficiency on Return on Total Employed Resources in Smart and Knowledge-Intensive Companies
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