The financial result is the difference between earnings before interest and taxes

Earnings before interest and taxes

In accounting and finance, earnings before interest and taxes is a measure of a firm's profit that excludes interest and income tax expenses. Operating income is the difference between operating revenues and operating expenses...

 and earnings before taxes

Earnings before taxes

Earnings before taxes is the money retained by the firm before deducting the money to be paid for taxes. E.B.T includes the money paid for interest. Thus, it can be calculated by subtracting the interest from EBIT ....

. It is determined by the earning or the loss which results from financial affairs.

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

Key performance indicators

A performance indicator or key performance indicator is an industry jargon for a type of performance measurement.. KPIs are commonly used by an organization to evaluate its success or the success of a particular activity in which it is engaged...

• 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 icome and expenses

Disadvantages

The disadvantages of the use of financial result as a Key performance indicator

Key performance indicators

A performance indicator or key performance indicator is an industry jargon for a type of performance measurement.. KPIs are commonly used by an organization to evaluate its success or the success of a particular activity in which it is engaged...

• 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.