Financial result

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:

Financial result  =  Interest income −  Interest expense ±  Write-downs/write-ups for financial assets ±  Write-downs/write-ups for marketable securities +  Other financial income and expenses

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.

financial result =

+ interest income - interest expenses +/- write up and write down for financial assets +/- write down and write up for marketable securities +/- other financial income and expenses

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.