Influence of some financial indicators on return on equity ratio in the Romanian energy sector - A competitive approach using a DuPont-based analysis

• Published in: Energy (Oxford) Vol. 189; p. 116251
• Main Authors: Bunea, Ovidiu-Iulian, Corbos, Razvan-Andrei, Popescu, Ruxandra-Irina
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 15.12.2019
• Subjects: DuPont analysis; Energy industry; Financial indicators; Return on equity; Financial indicators; Return on equity; Energy industry; DuPont analysis
• ISSN: 0360-5442
• DOI: 10.1016/j.energy.2019.116251

This study aimed to identify the financial indicators that strongly affect the return on equity (ROE) in the Romanian energy industry. Literature has revealed that firms that benefit from a higher ROE ratio often have some competitive advantage that allows for greater profit and thus greater return for investors. In this context, it seems absolutely necessary to identify and study those factors that have the strongest influence on ROE. The research was carried out on a sample of 1253 companies from the Romanian energetic industry. To identify the most powerful drivers of ROE we used a linear regression model. Also, the analysis was performed on three groups of companies, divided by their size to see any differences in drivers of ROE, depending on the company’s belonging to a particular group. Other financial ratios were introduced into the research. Thus, the study involved the use of five indicators/ratios that were believed to have a major influence on ROE. According to the results we have obtained, asset turnover, price to earnings, price to book and financial leverage were the most relevant ratios to determine ROE, with the indication that asset turnover and price to earnings have had the strongest influence. •We analyzed the impact of some financial indicators on the return on equity ratio.•The research was performed for the energy industry using a DuPont based analysis.•Asset turnover, price to earnings, price to book, financial leverage influence ROE.•Asset turnover and price to earnings have the strongest influence on the ROE ratio.