Financial Performance
Financial Performance
Introduction
Finance is the way money is made, lent, used, etc. To describe the financial situation of a government, organization or person, you talk about their finances. The way that something is paid for is the way that it will be financed - its financing. A financier is someone who works in finance at a high level, providing money for particular companies, projects, etc. Financial reporting is the information that a company gives about its finances. Financial performance is how well, or badly, a company is doing from a financial point of view.
A. Financial reporting
Maria Malone is the chief finance officer (CFO) of a large international media company, based in the UK, with activities in television and publishing. She's talking to new trainees in the finance department:
'As with all companies, investors and analysts want to know how the company is being run and how their money is being used. Each year we produce an annual report with three key sets of figures:
• profit and loss (P&L) account
• cashflow statement
'These are the three key financial statements in financial reporting. They give the basic information about our financial results.
Note: US companies publish their results every quarter - every three months.
B. The financial year
'Our financial year ends on 31 March, although other companies choose other dates. Soon after this, we publish preliminary results or prelims. The full report and accounts are published a few months later. As a UK company, we also publish interim results or interims after the first six months of our financial year.'
C. Shareholders, bondholders and lenders
'We use shareholders' money from the shares that we issue to operate and invest in the business. Some of the profit we make is normally paid out to them, usually in the form of dividends in relation to the number of shares that they each hold. Our shares are traded - bought and sold – on the London stock market.
'We borrow money in the form of bonds. We pay percentage interest on those bonds and then later repay the principal- the-amount of money originally lent to us. Our bonds are traded on bond markets.
'We also borrow money from banks in the form of loans, and we pay interest on this lending.
'Of course, our shareholders, bondholders and lenders all take a keen interest in our accounts!
'The results we publish can affect share prices; good results cause prices to rise if the market believes the company is undervalued. However, poor results often cause a drop in share price, as investors feel the company is overvalued.'