AD ALTA
JOURNAL OF INTERDISCIPLINARY RESEARCH
THE PROCESS OF FINANCIAL PERFORMANCE EVALUATING OF THE COMPANY
a
ANNA JACKOVÁ
University of Zilina, Univerzitná 8215/1, 010 26 Žilina
email:
a
Anna.Jackova@pd.uniza.sk
This paper has been written the support of VEGA 1/0544/19 – Formation of the
methodological platform to measure and assess the effectiveness and financial status
of non-profit organizations in the Slovak Republic.
Abstract: Evaluation of the company's financial performance is a key and irreplaceable
tool of the company's financial management, because the aim of the evaluation is to
look for ways to improve the company's financial performance and thus manage and
increase its competitiveness. Every company should have its own evaluation process,
which is important not only for the data collection itself. It also affects the analysis
itself, implementation into the company and presentation to stakeholders.
Keywords: Financial performance, traditional methods of financial performance
evaluation, modern methods of financial performance evaluation.
1 Introduction
Today, the market is dominated by high competitiveness of
companies. Since Slovakia's accession to the European Union,
the economy has undergone changes that complicate business
conditions in Slovakia. "Only those companies that respond
flexibly to these changes in the business environment, which do
not rely on current performance, but are looking for a way to
continuously increase it will be successful. One of the main goals
of financial management of companies can therefore be generally
formulated as a continuous increase in company performance. The
growth of a company's performance presupposes its effective
evaluation and management based on its repeated measurements,"
(Pavelková, Knápková, 2009, p. 13).
In a way, every company monitors its financial performance at
least once a year. Traditional methods of the financial
performance evaluation of a company are becoming less and less
effective, so it is necessary to implement the so-called modern
methods of company performance evaluation to its management.
2 Financial performance of the company
Renowned economists define a company's performance as
follows: "A company's performance is its ability to enhance the
resources invested, generate profits, increase the value of the
company and at the same time it is the ability to secure future
development," (Wagner, 2009, p. 17). "The company's
performance is the efficiency of the inputs transformation of the
company's transformation process into outputs, while the
obvious form of its manifestation is the company's financial
situation. It is a phenomenon that predetermines the outputs
(results) of the company, but at the same time it also results in
them," (Zalai, 2010, p. 271). "Company's performance is the
ability of a company to achieve the desired effects or outputs,
preferably in measurable units. With this statement, the issue of
performance is divided into two issues, namely:
1.
What are the required outputs?
2.
How to evaluate (and how to measure) their performance (in
what units of measurement)?" (Lesáková, 2007, p. 22).
The most important part of company’s performance is the
financial performance of the company. "Financial performance is
traditionally measured by value criteria, which are constructed
on the basis of data from financial statements, with the greatest
emphasis on generating profit using the resources obtained,"
(Fibírová, 2005, p. 7). Profit is thus one of the strategic goals of
the company, but it is not the main goal. "It is a means to achieve
the main goal and a measure of the evaluation of the company's
economic results. Nevertheless, it cannot be considered as the
only criterion that would comprehensively evaluate the
company,"
(Živělová, 2007, p. 17).
3 Methods of evaluating the financial performance of the
company
The literature presents a wide range of financial indicators,
which can be used to evaluate the financial performance of the
company. Among the most common indicators that characterize
the company's performance in the financial perspective are
indicators of traditional and modern methods of evaluating the
company's financial performance.
Traditional methods are mainly based on profit maximization.
The explanatory ability of traditional indicators is based on the
display of information achieved in previous periods and thus do
not provide an objective view of the potential growth of the
company's financial performance in the future. Therefore, in
assessing the future success of the company, modern methods of
evaluating the financial performance of the company are also
used, because modern indicators prefer to measure the
performance of the company in terms of increasing its value.
In particular, information is needed to assess a company's
financial performance. The predominant share of information
sources is represented by the financial statements of financial
accounting, but above all by the data contained in the financial
statements.
The financial statements of the company inform about the
conditions under which the reproduction process took place,
what was its course and results. A lot of important information
can be obtained from a relatively small space. The data on the
company's activities are factually, temporally and formally
correct. The method of preparation of the financial statements,
its structure and the statements that make it up depend on
whether the company accounts in the system of single or double-
entry bookkeeping. Businesses of greater economic importance
are generally required to account in the system of double-entry
bookkeeping, which is often referred to as financial accounting.
Its aim is to quantify the economic result of the company.
The double-entry financial statements consist of the balance
sheet, the profit and loss statement and the notes. The balance
sheet provides information on the company's assets and financial
resources for its coverage, which characterizes the conditions
under which the reproduction process took place. The profit and
loss statement provides information on the income, expenses and
profit or loss of the company, broken down by economic and
financial activity. The notes contain information that explains
and supplements the data in the balance sheet and profit and loss
statement. From the point of view of the company's analysis, the
cash flow statement is particularly relevant. It informs about the
income and expenses of the company and their difference, i.e.
the state of financial resources. Its need is due to the fact that in
some cases the revenues of the company does not equal the
income, the costs do not equal the expenses, and thus the
economic result may not be (and usually is not) identical with
the cash available to the company.
3.1 Traditional methods of financial performance evaluation
Traditional methods of evaluating the financial performance of a
company use only financial analysis. Its subject is the financial
situation of the company. "Financial analysis is used to
comprehensively assess the financial situation of the company. It
helps to determine whether the company is sufficiently
profitable, whether it has a suitable capital structure, whether it
uses its assets efficiently, or whether it is able to repay its
liabilities on time. Ongoing knowledge of the company's
financial situation allows managers to make the right decisions
in obtaining financial resources, in determining the optimal
financial structure, in the allocation of free financial resources, in
the provision of business loans and in the distribution of profits,"
(Knápková, Pavelková, Šteker, 2013, p. 23). The aim of
financial analysis is to use financial data to evaluate the past and
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