Corporate FP has been widely measured for a firm’s performance in practice and literature. There has been much debate on the business–society relationship and business responsibility toward the welfare of society at the stake of firm profitability. Many researchers have empirically found that there is a strong positive correlation between firms‘ FPs because of incorporating CSR into their business activities. CSR is in the form of incremental gains to the organization, and it provides long-term economic development and sustainability in the organization. CSR activities by providing reputation insurance lead to greater confidence among stakeholders and investors in the firm, increasing the financial development of the company.
A subjective measure of how well a corporate can use assets from its primary mode of business and generate revenues. This term is also used as a general measure of a corporate’s overall financial health over a given period of time, and can be used to compare similar firms across the same industry or to compare industries or sectors in aggregation.
In short, the corporate itself as well as various interested groups such as managers, shareholders, creditors, tax authorities, and others seeks answers to the following important questions such as What is the financial position of the corporate at a given point of time? Or how is the Financial Performance of the firm over a given period of time? These questions can be answered with the help of financial analysis of a firm. There are many different ways to measure financial performance, but all measures should be taken in aggregation. 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.
Financial analysis involves the use of financial statements. A financial statement is an organized collection of data according to logical and consistent accounting procedures. Its purpose is to convey an understanding of some financial aspects of a business firm. It may show a position at a moment of time as in the case of a Balance Sheet, or may reveal a series of activities over a given period of time, as in the case of an Income Statement. Thus, the term ‘financial statements’ generally refers to two basic statements: the Balance Sheet and the Income Statement. The financial performance identifies the financial strengths and weaknesses of the firm by properly establishing relationships between the items of the balance sheet and profit and loss account. The first task is to select the information relevant to the decision under consideration from the total information contained in the financial statements. The second is to arrange the information in a way to highlight significant relationships. The final is interpretation and drawing of inferences and conclusions. In short, “financial performance analysis is the process of selection, relation, and evaluation.
