Exploring the Relationship Between HRM Practices and Financial Performance Indicators (ROA and ROS): A Case Study of Enterprises in Kosovo

Abstract

In increasingly demanding work environments where employees are frequently required to complete a wide range of tasks under time pressure, the strategic management of human resources becomes essential for sustaining organizational performance. Without effective human resource management (HRM) practices, employees may struggle to fully realize their potential in performing their duties. When employees are equipped with the necessary skills and competencies, they tend to experience higher job satisfaction and are more likely to remain in their roles long-term. This study aims to explore how key HRM practices—such as training and development, flexible rewards, job stability, equality, and employee involvement—enhance employee performance and, in turn, impact financial performance indicators such as Return on Assets (ROA) and Return on Sales (ROS) in small and medium-sized enterprises (SMEs). Financial performance serves as an objective measure of how effectively an organization utilizes its assets to generate income and achieve strategic goals. As highlighted by Dekamini & Birau (2024) employee performance plays a crucial role in determining a firm’s financial success. HRM practices are designed to maximize efficiency over the long term and at minimal cost, in alignment with organizational objectives. Today, organizations that recognize human capital as a valuable asset are better positioned for sustainable development and growth. In this context, HRM expertise becomes increasingly vital. As Dekamini & Birau (2024) argue, prioritizing employees can be even more important than focusing solely on customers—because satisfied employees are more likely to deliver superior value to clients.