Financial Performance
Financial performance
Preparation
millimeter. Zulfiqar Abdul Majeed Muhammad Al-Issawi
the introduction
Many researchers and writers have been interested in the concept of financial performance as an effective and distinctive tool that contributes to measuring the effectiveness and efficiency of management, as it is possible to measure the success of a company through its financial performance, through the use of appropriate financial indicators that help identify strengths and weaknesses in its performance, and compare results with plans and strategies developed, in order to identify deviations and take the necessary remedial action.
1- The concept of financial performance
The word performance comes from the old French literature of the thirteenth century meaning “to carry out an action” and is the result based on a reference standard or measurement (Burja & M?rginean, 2014: 217).
Performance is generally defined as achieving the purpose of a specific activity or profession measured by the standard (Mardiana & Dianata, 2018: 261), and from a financial point of view performance is defined as the company's ability to manage and control its resources (Fatihudin, et. al, 2018: 554).
Researchers have differed in the definition of financial performance, as some focus on the company’s ability to meet its financial obligations, as (Msua, 2016: 13) and (Ganyam & Ivungu, 2019: 42) indicate that financial performance is a composite of the financial health of the institution and its ability and desire to Fulfill its long-term financial obligations and commitment to provide services for the foreseeable future.
While some focus on the results of the company's operations from a financial point of view. As (Mwangi, 2016: 4), (Etengu & Amony, 2016: 330) and (Rai, 2019: 9) that financial performance is the process of measuring the results of the company’s policies and operations in monetary terms and determining the financial strengths and weaknesses of the company through establishing relationships between Items of financial position and income statement, these results are reflected in the company's profitability, liquidity or financial leverage.
Others focus in defining financial performance on the company's ability to generate revenue, as (Wanjohi, et. al, 2017: 71) defines it as a measure of the extent to which the company uses assets to generate revenue. (Mohammad & Bujang, 2019: 270) argues that the financial performance of companies refers to an environment that shows how companies employ their resources, intellectual capital, and capital structure to generate revenue.
2- The importance of financial performance evaluation
The success of a particular company is mainly explained by knowing the results of its performance during a certain period of time (Al-Matari, et. al, 2014: 25), and the issue of performance in general and financial performance in particular has become one of the most discussed aspects of researchers and writers in The field of management science, as financial performance is one of the most widely used dimensions of performance in evaluating the performance of companies, as it is the most stable and developed dimension (Hassan, 2014: 216). (Osman, 2018: 3-4) indicates that the importance of the financial performance of companies is as follows:
1- It reflects the company's ability to achieve its objectives.
2- It provides a set of information that makes the company able to know its financial position, which contributes to helping it take appropriate decisions in the future.
3- It determines the credit position of the companies and their ability to meet their obligations.
4- Evaluating the efficiency of the administrative apparatus and its effectiveness in achieving the company's objectives.
5- It enables knowledge and follow-up of the company's activities and operations, as well as follow-up of the surrounding financial and economic conditions.
Evaluating the financial performance of companies is essential, as these companies need to obtain information about the return on the money invested and its use (Malicová & ?urišová, 2015: 239).
(Naz, et. al, 2016: 82) agrees with this view, explaining that the financial performance evaluation process contributes to providing complete information to shareholders and stakeholders to encourage them to take appropriate decisions, as well as using it to evaluate similar companies from the same industry or to compare industries in the group.
(Dong, et. al, 2018: 4) asserts that evaluating financial performance is important for corporate investors to make investment decisions, as it enables them to avoid random investment and make a better decision in the high-risk capital market. The evaluation of financial performance also allows decision makers to judge the results of business strategies and activities in objective monetary terms (Rai, 2019: 9).
3- Financial performance evaluation steps
There is no agreement among researchers on specific steps or stages of the financial performance evaluation process. (Al-Mutairi, 2011: 18-19) believes that the process of evaluating the financial performance passes through several stages, the most important of which are the following:
1- Planning stage: In this stage, budgets and estimated lists are prepared, then evaluation tools and expected future goals are determined.
2- Results comparison stage: In this stage, actual performance results are compared with planned performance for the purpose of knowing the extent to which the previously set goals have been achieved.
3- A stage after comparing the results: In this stage, it is determined whether there are deviations in order to analyze them, diagnose their causes and treat them.
While (Mohammed, 2019: 501) believes that the steps of the financial performance evaluation process are:
1- Obtaining the financial statements related to the company's performance during a specified period of time.
2- Determining the appropriate financial indicators such as (profitability, liquidity and financial leverage).
3- Extracting the results and knowing the deviations, differences and weaknesses.
4- Develop appropriate recommendations after knowing the causes of deviations and their impact on the company's performance for the purpose of treating them.
4- Financial performance evaluation indicators
A performance indicator is a quantitative or qualitative indicator that reflects the state of progress of a company, unit or individual (Piroozfar, et. al, 2012: 6332). Financial ratios derived from data in the income statement and balance sheet are critical measurement tools in determining the performance of companies, as many studies have shown