The impact of inflation on corporate profitability indicators in the current conditions

Abstract

Under conditions of contemporary macroeconomic instability, inflation serves as one of the key systemic factors influencing the formation of business entities’ financial performance, leading to transformations in cost structures, revenues, pricing policies, and mechanisms for ensuring enterprise efficiency. The intensification of inflationary processes is associated with rising production, labor, and financial resource costs, changes in effective demand, higher borrowing costs, and increasing macroeconomic uncertainty, all of which directly affect the profitability of business entities. Under such conditions, the quantitative assessment of the nature, direction, and magnitude of inflation’s impact on corporate profitability as an integral indicator of enterprise efficiency becomes particularly relevant. At the same time, contemporary research primarily focuses on the general characteristics of inflationary processes, whereas the economic and analytical assessment of inflation’s impact on enterprise performance remains insufficiently studied, thereby determining the relevance of this research.

The purpose of this study is to determine the nature, direction, and magnitude of inflation’s impact on the profitability indicators of Ukrainian enterprises under conditions of macroeconomic instability, as well as to examine the relationship between inflationary processes and enterprise performance.

The study employs a combination of general scientific and specialized methods, including methods of theoretical generalization, analysis, and systematization to examine the economic nature of inflation and enterprise profitability; economic and statistical analysis to assess the dynamics of macroeconomic indicators; comparative analysis to identify trends in profitability indicators; and correlation analysis together with Pearson’s correlation coefficient to determine the degree and direction of the relationship between inflation and enterprise profitability.

The study’s findings indicate that inflation affects enterprise profitability through cost, price, demand, financial, and expectations channels, leading to changes in the cost and revenue structures of business entities and transforming the conditions underlying their operational efficiency. It is found that Ukraine’s macroeconomic environment in 2020–2024 was characterized by high volatility and unstable enterprise financial performance. It is found that the most pronounced adverse impact of inflationary pressures on profitability indicators occurred in 2022, driven by a combination of military and macroeconomic challenges, alongside a sharp decline in GDP and a significant deterioration in enterprise efficiency. The correlation analysis reveals a moderate inverse relationship between inflation and enterprise profitability, indicating a tendency for enterprise performance to decline amid rising inflationary pressures.

Conclusions. Inflation is demonstrated to be a significant destabilizing macroeconomic factor that negatively affects enterprise profitability through rising costs, increased financial uncertainty, and deteriorating conditions for economic activity. The paper substantiates the appropriateness of applying economic and analytical methods to the quantitative assessment of the relationship between inflation and enterprise financial performance. The results obtained may be used to enhance the soundness of managerial decision-making in relation to enterprise financial and pricing policies, cost structure optimization, and the adaptation of business entities to macroeconomic instability.