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Recommended textbook solutionsBusiness Math17th EditionMary Hansen 3,734 solutions Mathematics with Business Applications6th EditionMcGraw-Hill Education 3,760 solutions
Mathematics with Business Applications6th EditionMcGraw-Hill Education 3,760 solutions Business Math17th EditionMary Hansen 3,734 solutions Recommended textbook solutions
Mathematics with Business Applications6th EditionMcGraw-Hill Education 3,760 solutions
Mathematics with Business Applications6th EditionMcGraw-Hill Education 3,760 solutions
Fundamentals of Financial Management, Concise Edition10th EditionEugene F. Brigham, Joel Houston 777 solutions
Business Math17th EditionMary Hansen 3,734 solutions What Is Financial Performance?Financial performance is a subjective measure of how well a firm can use assets from its primary mode of business and generate revenues. The term is also used as a general measure of a firm's overall financial health over a given period. Analysts and investors use financial performance to compare similar firms across the same industry or to compare industries or sectors in aggregate. Key Takeaways
Financial PerformanceUnderstanding Financial PerformanceThere are many stakeholders in a company, including trade creditors, bondholders, investors, employees, and management. Each group has an interest in tracking the financial performance of a company. The financial performance identifies how well a company generates revenues and manages its assets, liabilities, and the financial interests of its stakeholders and stockholders. There are many ways to measure financial performance, but all measures should be taken in aggregate. Line items, such as revenue from operations, operating income, or cash flow from operations can be used, as well as total unit sales. Furthermore, the analyst or investor may wish to look deeper into financial statements and seek out margin growth rates or any declining debt. Six Sigma methods focus on this aspect. Recording Financial PerformanceA key document in reporting corporate financial performance, one heavily relied on by research analysts, is Form 10-K. The Securities and Exchange Commission (SEC) requires all public companies to file and publish this annual document. Its purpose is to provide stakeholders with accurate and reliable data and information that provide an overview of the company's financial health. Independent accountants audit the information in a 10-K, and company management signs it and other disclosure documents. As a result, the 10K represents the most comprehensive source of information on financial performance made available to investors annually. A company's Form 10-K has to be accessible to the public. Anyone who wishes to examine one can go to the SEC's Electronic Data Gathering, Analysis and Retrieval (EDGAR) database. You can search by company name, ticker symbol, or SEC Central Index Key (CIK). Many companies also post their 10-Ks on their websites, in an "Investor Relations" section. Although the terms are sometimes used interchangeably, a company's Form 10-K is not the same as its annual report. Both include information about the company and its financial performance over the last year. But the annual report is more of a polished publication, lavishly illustrated and describing various projects and initiatives the company undertakes. The 10-K lacks such photos and graphics but generally goes into more financial details and calculations. Financial StatementsIncluded in the 10K are three financial statements: the balance sheet, the income statement, and the cash flow statement. Balance SheetThe balance sheet is a snapshot of the finances of an organization as of a particular date. It provides an overview of how well the company manages its assets and liabilities. Analysts can find information about long-term vs. short-term debt on the balance sheet. They can also find information about what kind of assets the company owns and what percentage of assets are financed with liabilities vs. stockholders' equity. Income StatementThe income statement provides a summary of operations for the entire year. The income statement starts with sales or revenues and ends with net income. Also referred to as the profit and loss statement, the income statement provides the gross profit margin, the cost of goods sold, operating profit margin, and net profit margin. It also provides an overview of the number of shares outstanding, as well as a comparison against the performance of the prior year. Cash Flow StatementThe cash flow statement is a combination of both the income statement and the balance sheet. For some analysts, the cash flow statement is the most important financial statement because it provides a reconciliation between net income and cash flow. This is where analysts see how much the company spent on stock repurchases, dividends, and capital expenditures. It also provides the source and uses of cash flow from operations, investing, and financing. Other specialized financial performance indicators are more specific to certain industries. For example, companies whose sales of goods and services vary depending on the time of the year might use seasonality as a metric, measuring how a certain period or season affects the figures and outcomes. Example of Financial PerformanceAs an example of financial performance analysis, let's look at the Coca-Cola Company's year-over-year performance in 2019 and 2020.
Coca-Cola's performance was not great in 2020. Net revenues declined 11% from the previous year. Gross profit and income per share fell 14%. The company attributed its performance to the problems caused by the coronavirus pandemic, along with "a currency headwind" (a reference to the fact that it's a global company, with many operations and markets overseas). Coca-Cola derives more than a third of its revenue from non-retail channels, like restaurants and concession stands. So the shuttering of public venues and the stay-at-home mandates hurt its sales. Why Is Financial Performance Important?A company's financial performance tells investors about its general well-being. It's a snapshot of its economic health and the job its management is doing—providing insight into the future: whether its operations and profits are on track to grow and the outlook for its stock. What Are Financial Performance Indicators?Financial performance indicators, also known as key performance indicators (KPIs), are quantifiable measurements used to determine, track, and project the economic well-being of a business. They act as tools for both corporate insiders (like management and board members) and outsiders (like research analysts and investors) to analyze how well the company is doing—especially regarding competitors—and identify where strengths and weaknesses lie. The most widely used financial performance indicators include:
What Is a Financial Performance Analysis?Financial analysis refers to the process of studying and assessing a company’s financial statements—a collection of data and figures organized according to recognized accounting principles. The aim is to understand the company's business model, the profitability (or loss) of its operations, and how it's spending, investing, and generally using its money—summarizing the company by the numbers, so to speak. A financial performance analysis examines the company at a specific period in time—usually, the most recent fiscal quarter or year. The balance sheet, the income statement, and the cash flow statement are three of the most significant financial statements used in performance analysis. Financial performance analysis can focus on different areas. Types of analysis can include a specific examination of a firm:
How Can I Improve My Financial Performance?A company's financial performance can be improved in several ways. Of course, trying to identify any roadblocks or friction points—and the source of these problems—is the first step. Other strategies include:
What Are the Types of Financial Statements?While there are many types of financial statements, the big three are:
The Bottom LineThe financial performance of a company is based on numbers. But in the end, it imparts an impression about the company and its soundness. A financial analysis of a company's financial statements, summarized in annual reports and Form K-10s—is essential for any serious investor seeking to understand and value a company properly. However, it's also important to realize that financial performance reflects the past, and is never an exact indicator of the future. Nor does it exist in a vacuum. Those evaluating a company's financial performance should always consider it in light of other, comparable businesses; the overall industry; and the company's history. What two metrics are used in the BCG portfolio analysis?-One of the most popular portfolio analysis methods, developed by the Boston Consulting Group (BCG), requires that firms classify all their products or services into a two-by-two matrix; the horizontal axis represents the relative market share, the vertical axis represents market growth rate.
Which of the following are included in the four major growth strategies check all that apply?The four growth strategies. Market penetration. The aim of this strategy is to increase sales of existing products or services on existing markets, and thus to increase your market share. ... . Market development. ... . Product development. ... . Diversification.. What are the four components of a SWOT analysis choose every correct answer?The components of SWOT analysis are strengths, weaknesses, opportunities and threats.
Which of the following are included in the four major growth strategies quizlet?E. The four growth strategies are market penetration, market development, product development, and diversification. Which of the following is not one of the four major growth strategies marketers typically utilize? A situation analysis is the second step of the marketing planning process.
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