EVALUATING

OPERATING AND FINANCIAL

PERFORMANCE
CONTENTS
PART 1
• FINANCIAL PERFORMANCE
PART 2
• HOW TO IMPROVE FINANCIAL
PERFORMANCE

PART 3
• MANAGING CASH FLOW
FINANCIAL PERFORMANCE
 There are many stakeholders in a
company, including trade creditors,
bondholders, investors, employees, and
management. Each group has an interest in
tracking the financial performance of a
company. The financial performance
identifies how well a company generates
revenues and manages its assets, liabilities,
and the financial interests of its stakeholders
and stockholders.
Example of Financial Performance

As an example of financial
performance analysis, let's look at the
Coca-Cola Company's year-over-year
performance in 2019 and 2020.
 Coca-Cola's performance was not great in 2020.
Net revenues declined 11% from the previous year.
Gross profit and income per share fell 14%.

The company attributed its performance to the

problems caused by the coronavirus pandemic, along
with "a currency headwind" (a reference to the fact
that it's a global company, with many operations and
markets overseas).3 Coca-Cola derives more than a
third of its revenue from non-retail channels, like
restaurants and concession stands.4 So the shuttering
of public venues and the stay-at-home mandates hurt
its sales.
Why Is Financial Performance Important?

A company's financial performance tells

investors about its general well-being. It's a
snapshot of its economic health and the job
its management is doing—providing
insight into the future: whether its
operations and profits are on track to grow
and the outlook for its stock.
Financial Performance Indicators

Financial performance indicators, also known

as key performance indicators (KPIs), are
quantifiable measurements used to determine,
track, and project the economic well-being of a
business. They act as tools for both corporate
insiders (like management and board members)
and outsiders (like research analysts and
investors) to analyze how well the company is
doing—especially regarding competitors—and
identify where strengths and weaknesses lie.
The most widely used financial performance
indicators include:

• Gross profit /gross profit margin: the amount

of revenue made from sales after subtracting
production costs, and the percentage amount
a company earns per dollar of sales
• Net profit/net profit margin: the amount of
revenue from sales after subtracting all
related business expenses and taxes, and the
related ratio of earnings per dollar of sales
• Working capital: immediately available or
highly liquid funds, used to finance day-to-
day operations
• Operating cash flow: the amount of money
being generated by regular business
operations
• Current ratio: a measure of solvency—the
total assets divided by total liabilities
• Debt-to-equity ratio: a company’s total
liabilities divided by its shareholder equity
• Quick ratio: another solvency measure, that
calculates the percentage of very liquid
current assets (cash, securities, accounts
receivables) against total liabilities
• Inventory turnover: how much inventory is
sold within a certain period, and how often the
entire inventory was sold
• Return on equity: net income divided by
shareholder equity (a company’s assets minus
its debts)
 CASH FLOW

Cash flow is the incoming and outgoing

of money or monetary equivalents from the
funds of a business. It includes the money
coming in from sales, investments, and
other sources, as well as the money going
out to expenses for operating costs, capital
expenditures, debt repayments, and other
liabilities.
Cash Flow Analysis

Cash flow analysis is a financial tool that tracks

the inflow and outflow of cash in a business over a
period of time. It helps businesses determine their
ability to generate cash and pay off debts.

Here is an example of how it works:

ABC Company wants to determine its cash flow for

the first quarter of the year. To do this, they create a
cash flow statement that summarizes all the cash
inflows and outflows for the period.
Net Cash Flows for Q1:

$555,000 (cash inflows) – $220,000 (cash outflows) =

$335,000

As per this analysis, ABC Company has a positive net

flow of cash of $335,000 for Q1. It means that they have
generated more cash than they have spent during this
period.

By tracking its cash inflows and outflows, ABC

Company can better manage its finances and make
informed decisions about investments, expansion, and
other financial activities.
THANK YOU
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