ECONOMIC PROFITABILITY – A SELECTION CRITERIUM OF FINANCIAL MANAGEMENT

This study aimed to present a study case how financial decisions are based on the analysis of the ratio between economic profitability and interest rate. Two variants have been presented as follows: V1: profitability rate 12 % interest rate 9 %. The owner of the agricultural company has the intention to apply for three borrowings alternatives: A- Euro 8,000, B- Euro 15,000 and C- Euro 20,000 in order to complete his equity which counts for Euro 10,000 at the moment . The calculations have proved that the wise financial decision is in case of V2 , because borrowings contribute to the increase of economic profitability. The higher the borrowing level, the higher the economic profitability after borrowing. If the company’s owner uses just his equity , he would get only Euro 1,200 profit . For Euro 8,000 borrowing, he would get Euro 1,440 profit. For Euro 15,000 borrowing, he would get Euro 1,650 profit and finally, for Euro 20,000 borrowing, he would get Euro 1,800 profit.