Challenges of the Knowledge Society (May 2024)
FINANCIAL PERFORMANCE ANALYSIS OF THE COMPANY THROUGH PROFITABILITY RATIOS
Abstract
Financial analysis involves applying methods and techniques of analysis to financial reports and other related data to obtain useful information. This information is regarded as a significant relationship between data and their trends, showing a company's performance and financial position, as well as the results or consequences of previous management decisions. Additionally, they are used to make forecasts that can directly impact the decisions of financial statement users. Current and potential investors are interested in a company's future profitability. Therefore, the continuity of a company's past profits should represent a prediction of future profits. Many external users, such as creditors, are interested in knowing the level of a company's solvency rather than its profitability. Performance is a widely used concept in both literature and practice. In many cases, defining this concept is insufficient; often the focus is on measuring performance, which varies for each individual information user, rather than defining the concept of performance. Achieving performance involves meeting a primary necessary condition, namely, developing and implementing a specific system of indicators for measurement. In general, any economic entity, whether it is a micro-enterprise or a corporation, must have a current performance measurement system. This system is very important for the success and continuity of the entity's activities. This paper aims to highlight how a company's performance can be estimated and determined, respectively, measuring the extent to which the company's objectives have been achieved over a period of time. From this perspective, unachieved objectives, the reasons for not achieving them, and possible improvement methods for the future can be observed. The strengths and weaknesses of the company are identified in the performance evaluation stage specific to financial management, resulting in an analysis of behavior and identifying methods to improve activities.
