The Importance Of Financial Performance

Financial Performance is the process of quantifying the efficiency and effectiveness of an action. Organizational performance is achieved when the value that an organization creates using its productive assets is compared with the value that owners of these assets expect to obtain (Armstrong & Baron, 2005). On the other hand financial risk management can be defined as a set of financial activities that maximizes the performance of a company by reducing costs associated with the cash flow volatility (Iqbal & Mirakhor, 2011). The ultimate objective of risk management implementation is to maintain financial performance in firms as aspects of financial risk management promote early warning system of monitoring relevant indicators; as well as stimulating

Fatemi and Fooladi (2006) notes that effective risk management leads to more balanced trade-off between risk and reward, to realize a better position in the future. Bobakovia (2003) notes that the profitability of a firm depends on its ability to foresee monitor and avoid risks, and possibility of provisions to cover losses brought about by risk that arises. Shafiq and Nasr (2010) notes that an institution needs not do business in a manner that unnecessarily imposes risk upon it; avoid risk that can be efficiently transferred to other participants. Rather, it should only manage risks that are more efficiently managed at the firm level and shun those that can be managed by the market itself or by their owners in their own portfolios. In short, only those risks that are uniquely part of the firm's array of services should be accepted.
The financial performance of a firm can be analyzed in terms of profitability, dividend growth, sales turnover, and return on investments among others. However, there is still debate among several disciplines regarding how the performance of firms should be measured and the factors that affect financial performance of companies (Liargovas & Skandalis, 2008). According to Iswatia and Anshoria (2007) performance is the function of the ability

To have an edge in the competitive economic environment, good performance is not optional but a key pointer of meeting its goals and day to day operational obligations. Poor financial risk management has been cited as major cause of poor financial performance in firms (Ongore, & Owoko, 2011). Some researchers such as Alfred (2011), Allen and Maghimbi (2009) have observed that there are challenges in managing liquidity in firms leading to unmet customers’ needs. Liquidity challenges and other risk management issues have influenced the financial performance of these