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

Bojan Krstić, Ljiljana Bonić, Tamara Rađenović, Milica Jovanović Vujatović () and Jasmina Ognjanović
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Bojan Krstić: Faculty of Economics, University of Niš, 18105 Niš, Serbia
Ljiljana Bonić: Faculty of Economics, University of Niš, 18105 Niš, Serbia
Tamara Rađenović: Faculty of Occupational Safety, University of Niš, 18000 Niš, Serbia
Milica Jovanović Vujatović: Faculty of Economics, University of Niš, 18105 Niš, Serbia
Jasmina Ognjanović: Faculty of Hotel Management and Tourism in Vrnjačka Banja, University of Kragujevac, 36210 Vrnjacka Banja, Serbia

Sustainability, 2023, vol. 15, issue 15, 1-18

Abstract: 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.

Keywords: intellectual capital; measurement; performance; profitability; efficiency; smart; knowledge-intensive companies (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:15:y:2023:i:15:p:12076-:d:1212093

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