Financial result

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.

In mathematical terms financial result is defined as follows:

${\displaystyle \textstyle {\begin{aligned}{\mbox{Financial result }}&={\mbox{ Interest income}}\\&-{\mbox{ Interest expense}}\\&\pm {\mbox{ Write-downs/write-ups for financial assets}}\\&\pm {\mbox{ Write-downs/write-ups for marketable securities}}\\&+{\mbox{ Other financial income and expenses}}\end{aligned}}}$

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.

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.

• Wiehle, Ulrich, Henryk Deter, Michael Rolf, Michael Diegelmann, Peter Noel Schomig. 100 IFRS Financial Ratios (Cometis AG), 2005, ISBN 978-3-9809461-7-9