The Pyramidal Indicator Decomposition Model of Return on Equity as a Tool for Economics and Managerial Decision-Making

Research background: Pyramidal indicator decomposition models represent an important analytical tool in corporate financial analysis, enabling the identification and quantification of causal relationships between synthetic and partial financial indicators. Among their most significant applications is the decomposition of return on equity (ROE), which provides a detailed understanding of the factors influencing corporate profitability and shareholder returns. Purpose of the article: The aim of this paper is to examine the significance of the pyramidal indicator decomposition model in financial and economic analysis and to demonstrate its usefulness as a support tool for economic and managerial decision-making through the decomposition and interpretation of ROE. Methods: The study applies a pyramidal indicator decomposition model to ROE using the logic of the DuPont framework. The relationships between the synthetic indicator and its underlying partial indicators are analysed through multiplicative and combined decomposition structures. The proposed approach is demonstrated through a case study based on corporate financial data, supported by graphical and verbal interpretations of the decomposition results. Findings & Value added: The analysis identified the relative importance of profitability, asset efficiency, and financial leverage in shaping shareholder returns and demonstrated how changes in individual factors contribute to the overall development of the synthetic indicator. The study highlights the practical relevance of the pyramidal indicator decomposition model as a comprehensive instrument of financial analysis and a valuable support tool for economic and managerial decision-making. By enabling the identification of key performance drivers and quantifying their influence on ROE, the model provides managers with information that can support strategic planning, performance management, resource allocation, and corporate financial decision-making.