Select
and evaluate suitable financial performance measure that are classified
into profit measures and Cost Measure

Financial
performance is assessed by showing a summary of how the firm/ business incurs
it expenses and gain its revenue from both operating and non-operating
activities.

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Performance
measures; these refers to tools which are used to assess how well the business
is achieving its desired objectives

Financial
performance Measures; Refers to monitoring the inflow and outflow as well as
management of money within the organisation.

Inflow
this refers to the money generated within the organisation due to selling of
products or provision of services to its customers whereas outflow refers to
the money paid by the organisation in order to get a service or to buy an
asset/ product example payment made by the company to a suppliers of goods or
services.

Financial
performance measures rely on the information available from the statement of
income and statement of financial position (balance sheet). The following are
the financial performance measures that are classified in to profit measures; Liquidity
ratio, Solvency ratios, Profitability ratios and Management ratios.

Efficiency
ratios; these are ratios which measures the ability of the company to utilize
it available resources in generating income within the organization. Under this
category there are five measures of financial performance that are commonly and
widely used by many company in evaluating their performance.

a)      Asset
turnover ratio; it measures how the firm assets is efficiently and can be used
to generate revenue. Therefore the higher the ratio indicates how the company
is able to generate revenue (Income).

b)      Inventory
turnover ratio; this ratio show or measures the ability of the company in selling
goods by converting inventories in to cash.

c)      Receivable
turnover ratio; this ratio measures the ability of the firm to collect its cash
from its creditors/ customers. The lower the number of days in collecting its
debts indicates that the business is managed to control its creditors.

d)     Payable
turnover ratio; this ratio indicates or measures the ability the business on duty to pay its
suppliers. The fewer the number of days indicates that the company managed to
pay its suppliers on time and therefore the company build and develop a good
reputation as a quick payer and enable the company to find new suppliers. It also
help to maintain the existing supplier due to the trust built.

Profitability
ratios

These are ratios
which measures the ability of the firm or company in generating profits from
business operation. The profitability ratio indicates the relationship between
revenue and expenses and level of profits in relation with the size of the investment
in the company. Therefore under this measure the higher the profit will
indicates that, the business is performing goods and may continue to operate
its activities on a foreseeable future. Under this ratio there are several
ratio which are used to measure the financial of the business such as (a) Operating
profit margin which is used as a tool to measure the ability of the company to
pay its operating expenses such as administrative expenses which includes
salaries, stationary as well as expenses and operation expenses such as rent,
transport, postage; (b) Not profit margin whereas this ratio measure the
ability of the firm to generates profits from the business operations after the
deduction of interests and tax. The net profit represents the company financial
performance is not good therefore measures should be taken to improve the company’s
performance financially; (c) Return on Assets this measures the return on the company’s
assets over the capital employed. Therefore the higher the value obtained
indicates that the company profits;(e) Return on equity this measure the
rate  of return on owners equity over the
capital employed. It is useful to consider ROE because investors are concerned
to know the equity of the firm. The higher the value indicates that the company
is making profits and therefore potential investors they are willing to invest
on a profitable business.

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