Financial Performance In Business
In any business industry, we seek to analyze the financial performance of the business we are doing. This financial performance is the tool available for auditing the work done; whether we are performing well or not. In other words, it is the tool that allows us to measure the benefits of the job we are dealing with. But, “performance” as a term is related to the outcome of a specific work done. Thus, financial performance is measure depending first on the work done and on specific standards set that allocates this performance on a scale of comparison. We need first to understand the term “performance” on a scientific basis before going through the explanation of “financial performance” and its measures.
Many scholars agreed that the term performance
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Financial performance thus, is the quality of management of assets in a specific business firm from the starting point to the result; revenues of the firm. Financial performance can be measured depending on several factors, and this measure provides us with a good indicator whether the firm is financially healthy or not. The indicators of the financial status of a specific business are directly related to the statistical relations between its financial account components. These statistical relations are summarized by ratios that determine the financial stability of the business according to a chart of comparison and can be used also to determine the future financial balance of the business. Financial performance is measured based on the following indicators: Profitability, Liquidity, Solvency and Financial efficiency.
Profitability measures to what amount the business generates revenue depending on resource exploitation, management and capital. Thus, it is the ability to manage the resources in a way to create profits and cash flows. We can calculate the following based on:
• ROA: Rate of return on
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Other theories focus more on the concept of management in the financial performance of a business. Financial performance is the critical performance of the management; because calculating ratios allows us to create basic numerical notions that permit concrete actions evaluation. Thus, having a numerical model indicates whether the management is efficient or not and vice-versa (Lebas, M.
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