Interpretation
For most industrial companies the financial result is negative, as the interest charged on borrowing generally exceeds income from investments (dividends). If a company records a positive financial Result over several periods, then one has to ask how much capital is invested at which interest rate, and if this capital would not bear a greater yield if it were invested in the company's growth. In case of constant, positive financial results a company also has to deal with increasing demands for special distributions to its shareholders.Calculation formula
In mathematical terms financial result is defined as follows:Advantages
The advantages of the use of financial result as a key performance indicator * The financial result provides information about financing costs. * Information may be gained about non-consolidated companies.Disadvantages
The disadvantages of the use of financial result as a Key performance indicator * Operating components may be included in the financial result (e.g.: the income from financing activities). * Investment income as a component of the financial result does not provide any information on the risk inherent in this investment. * The financial result may vary strongly over time.References
* Wiehle, Ulrich, Henryk Deter, Michael Rolf, Michael Diegelmann, Peter Noel Schomig. ''100 IFRS Financial Ratios'' (Cometis AG), 2005, Profit Financial ratios {{finance-stub