SOE11444 Global Business Economics and Finance Assessment Answer

Evaluation of the Relevance of Financial Performance

Financial performance refers to a company's success in achieving its key strategic goals and making a profit. Investors and analysts will frequently consider the Company's financial results when evaluating or contrasting a firm to others operating in the same industry. Investors are interested in a company's financial performance because it conveys much information regarding its health and prosperity. Therefore, the primary focus of this research will be on the financial measures that may be utilized to determine the degree of probability that a company will be able to accomplish its long-term strategic aim.

Financial reports are straightforward to peruse and comprehend. This study supports the hypothesis that implementing a comprehensive definition of production may result in findings that are more confusing than they are currently. If productivity measurements were required to incorporate all performance parameters, they might not be effective. This incident would have significant repercussions. When discussing the collective achievements of an organization, it is crucial to remember that the term productivity does not apply. “ Discussing a company's performance is difficult because its operating environment significantly influences its objectives and the viability of a business depends on its business objectives” (Cho, Chung & Young, 2019).

A full review of a company's financial health and its ability to continue operations over a predetermined amount of time is what is involved in a financial performance analysis. The study of financial accounts and key performance indicators is a component of this analysis. “For example for HSBC bank , the key parameters include cash flow, operating profit, operational expenses, debt-to-equity ratio, and accounts receivable turnover. Other important metrics include operating profit, operating expenses, and operating ratio” (Shabbir & Wisdom, 2020).

In order to carry out the process effectively, it is necessary to have a complete awareness of the components that make up financial statements, the ability to competently recognise problematic areas, a working knowledge of the financial key performance indicators used by the firm, and an in-depth acquaintance with the field in which the company operates. This analysis makes it easier for the company to carry out financial planning and analysis by including projections to anticipate future profitability. These forecasts take into consideration risk, the possibility of price fluctuations, and asset depreciation. Prior to getting started, it is absolutely necessary to make use of the company's financial performance measures and ratios in order to evaluate liquidity and figure out the general health of the organisation.

Business performance is a measure of commercial success, which is the ability of an organization, a division, or a person to help the Company reach its goals and get the results it wants. A business's costs, timeliness, quality, and sales or revenue are essential to its commercial success. Business success and improvement aim to please stakeholders and keep the business going. Business effectiveness is based on how well a company runs its daily operations in line with the plans it has already made (Bassen & Kovács, 2020). This is measured by business performance. So, businesses must monitor certain factors to measure output and determine how well their strategies work. For the Company to reach its goals, it must pay attention to its customers, clients, workers, suppliers, partners, and local communities. All critical factors should be taken into account when evaluating business success metrics. It's essential to know how well past tactics worked so one can build new ones based on them. Evaluation of performance brings clarity and shows what needs to be done to get the business in line with its goal. They also help make plans for the future.

If the companies like PWC understand how to read these indications, they will be able to determine how well the organization's financial procedures are operating. After that, the knowledge can be used to adjust the objectives of a particular team or perhaps an entire division within the organization. This assists the organization in accomplishing several significant long-term business objectives. Maintaining a close check on various financial success indicators is essential to have an accurate image of the company's state at any given time. These actions have to be performed for the group to be effective. The first item that needs to be considered is the gross profit margin. This ratio demonstrates that one method for determining whether or not a firm is profitable is to examine the amount of money that remains after deducting all of the costs associated with each item sold.

But the other three perspectives comprise non-financial indicators that help businesses track their progress in building the skills and intangible assets needed for future growth and financial performance. Financial measures show the results of actions that have already been taken, but the other three perspectives are the consequences of those actions. The BSC is an open system that considers the requirements of various parties, achieves a balance between issues that are relevant in the short term and those that are relevant in the long term, and uses leading and lagging indicators. Providing the information necessary for feed-forward control is the purpose of this endeavor. In addition, it prevents sub-optimization by requiring senior managers to look at all of the essential measurements simultaneously. “This ensures that improvements in one area do not come at the expense of progress in another place ” (Cho, Chung & Young, 2019).

Impact of Information and Sustainability on Share Value

The efficient market hypothesis states that a share's worth is calculated by factoring in all relevant information. Each new piece of information can change the underlying price of a claim. An investment's worth is based on expectations for the future. This value's veracity rises directly to how complete and trustworthy the data is (Bassen & Kovács, 2020). When there is the possibility of litigation that could harm the Company's reputation or cause financial losses, investment professionals show a keen interest in non-financial information, even if it does not have a direct influence on the stock price in everyday operations. Sustainable development is an approach to economic and social progress that prioritizes present and future generations' well-being without compromising either society's or the planet's ecological integrity. Despite people's increasing awareness of the importance of sustainable business practices, questions remain about quantifying a company's success in this area.

Therefore, businesses are making more of an effort to provide information that isn't strictly financial to shareholders. The "non-financial" aspects of a company's performance go beyond traditional financial metrics to provide a more all-encompassing picture of the business's health. Many publicly traded companies publish reports detailing their CSR efforts, environmental impacts, sustainability policies, and corporate governance practices. While a wealth of data is available, its disorganization makes it useless for business experts. Even for those with expert-level knowledge, it may be difficult to fully grasp and use disclosures. Non-financial factors, in particular, may display unique features to the operational dynamics of different businesses. There is no uniformity in the business world regarding how this subject is broached from Company to Company (Shabbir & Wisdom, 2020).

Furthermore, organizations like Apple use different terminology and vocabulary when talking about non-financial topics, making the comparison more difficult. In addition, it is difficult to measure the impact of these intangible elements on financial performance and to anticipate future financial results because of the inherent difficulties in measuring and monetizing them.

As a primary environmental concern that businesses must face, climate change has deep ties to the world of economics. Companies will likely have to adapt to new conditions shortly. Limits on their use, higher taxes, and more control are all examples of potential restrictions on the consumption of carbon-based energy sources. While the specifics of upcoming carbon legislation and the associated changes to pricing structures are still up in the air, their certainty cannot be denied. Oil, gas, and utility companies, which use carbon extensively, can be expected to bear the brunt of the consequences. More than just carbon-intensive businesses like oil, gas, and utilities will feel the effects of the future climate change rules. As a primary environmental concern that companies must face, climate change has deep ties to the world of economics. Companies face a major environmental threat in the form of climate change, and this threat has strong links to the world of finance. In the not-too-distant future, businesses will likely have to adapt to new conditions. While it's true that the investment community would benefit from putting more weight on numbers, there's no denying that doing so runs the risk of distracting from more pressing concerns, especially if they're intricate in nature. Key performance indicator monitoring and management is not only a problematic chore but also has an important function. The value of data rests in the insights it provides, calling for a well-rounded view to aid in making well-informed decisions and spotting less apparent dangers. Key Performance Indicators in the areas of environment, society, and governance are helpful in mitigating the severity of hazards. Their numbers are accurate, but they can't take the place of a thorough assessment of risks and probable outcomes place (Cho, Chung & Young, 2019).

“When an investor does a price analysis with the assistance of financial data, the investor will benefit from the usage of the data. This investigation will be completed in a reasonably short amount of time” (Folger-Laronde et al. 2022). Its goal is to analyse how the market responds to various pieces of financial data. According to this line of thinking, a piece of information only has value if it contributes to the overall information base of the market. Speculators make their decisions exclusively based on the facts included in the publically accessible balance sheet and income statement of the target company. Value relevance is a direct indication of information benefits for decision-making because it reflects the function of accounting information in providing investors with necessary information for evaluation purposes. This is because value relevance is a direct indicator of the benefits of information for decision-making. In particular, value relevance corresponds to the overall objective of the financial report, which is to give limited information to enable present and potential investors, lenders, and other creditors to estimate the value of the Company. This information is intended to be used in the preparation of the financial report. As a result, it is necessary that it be suitable for the event and timely. In addition to this, the material must be accurate and free of any kind of bias or mistake. Because of this, the user is able to derive value from the accounting information, which also makes it relevant. When it comes to the qualitative elements of accounting knowledge, relevance is one of the most significant and vital qualities. Accounting information is only considered relevant to customers if it can have an effect on the decisions they make regarding their businesses (Bassen & Kovács, 2020).

The shareholder model and the stakeholder model of a corporation are the two primary models of a company that are discussed in the economics literature regarding how corporate governance influences how well a company succeeds financially. Corporate governance is typically understood to relate, in its most restricted sense, to the formal approach that is employed in order to ensure that senior management is held accountable to shareholders. The phrase "corporate governance" refers to a broad concept that can be used to discuss both the formal and the unofficial ties that exist inside an organization. More recently, an idea known as the stakeholder approach has emerged ( Shabbir & Wisdom, 2020). This approach places an emphasis on the contributions that various stakeholders can make to the long-term profitability of the Company and the value it provides to shareholders. The shareholder approach acknowledges that other factors, including corporate ethics and relations with stakeholders, can also have an impact on the reputation of the organization and its prospects for the long term. Therefore, the distinction between these two different types is not as cut and dried as it might appear at first glance. Instead, it comes down to the manner in which they express themselves and argue their ideas. One further reason why ownership concentration is the most common style of management is that it is one way to tackle the challenge of keeping track of things.

Another reason why ownership concentration is the most common type of management is because it is the most efficient. According to the principal-agent model, the performance of companies should suffer if ownership and control are split up since managers and shareholders pursue different kinds of goals and have different types of interests. Due to this, one approach to resolving this issue is to concentrate ownership in the hands of a small number of shareholders so that they can exercise direct control over the Company. The problem with having requests split among several different people is that there are fewer incentives to keep an eye on how things are managed. In the expectation that other shareholders would continue to monitor the situation, shareholders have an incentive to "free-ride" on the efforts of other shareholders. This is due to the fact that the benefits of monitoring are distributed evenly among all owners, whereas the expenses of monitoring are borne solely by the owners who actually perform the monitoring. Because the principal stakeholder in a company with concentrated ownership obtains most of the rewards of his monitoring work, free-rider concerns do not arise when ownership is concentrated. One further reason why ownership concentration is the most common style of management is that it is one way to tackle the challenge of keeping track of things (Bassen & Kovács, 2020).

There are still a lot of companies out there that base their strategies on their annual plans and budgets. This approach to managing a company dates back more than a century ago, and it is now considered antiquated. But in today's more competitive business world, firms understand that their plans, budgets, and expectations need to reflect what is occurring now rather than what was happening two, three, or more quarters ago. This is because companies' ability to accurately predict the future is becoming increasingly difficult. Continuous planning and rolling forecasts are two strategies that are gaining popularity as means to modify plans, budgets, and projections frequently throughout the course of an entire year, sometimes as frequently as once every three to four weeks. These strategies assist managers in identifying trends in their industry before their rivals do, which enables them to make quicker and more informed decisions on pricing, product mix, capital allocation, and even staffing numbers.

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