Financial result

Part of a series on

Accounting

* Historical cost
* Constant purchasing power
* Management
* Tax

Major types

* Audit
* Budget
* Cost
* Forensic
* Financial
* Fund
* Governmental
* Management
* Social
* Tax

Key concepts

* Accounting period
* Accrual
* Constant purchasing power
* Economic entity
* Fair value
* Going concern
* Historical cost
* Matching principle
* Materiality
* Revenue recognition
* Unit of account

Selected accounts

* Assets
* Cash
* Cost of goods sold
* Depreciation / Amortization
* Equity
* Expenses
* Goodwill
* Liabilities
* Profit
* Revenue

Accounting standards

* Generally-accepted principles
* Generally-accepted auditing standards
* Convergence
* International Financial Reporting Standards
* International Standards on Auditing
* Management Accounting Principles

Financial statements

* Annual report
* Balance sheet
* Cash-flow
* Equity
* Income
* Management discussion
* Notes to the financial statements

Bookkeeping

* Bank reconciliation
* Debits and credits
* Double-entry system
* FIFO and LIFO
* Journal
* Ledger / General ledger
* T accounts
* Trial balance

Auditing

* Financial
* Internal
* Firms
* Report

People and organizations

* Accountants
* Accounting organizations
* Luca Pacioli

Development

* History
* Research
* Positive accounting
* Sarbanes–Oxley Act

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The financial result is the difference between earnings before interest and taxes and earnings before taxes. It is determined by the earning or the loss which results from financial affairs.

## Contents

* 1 Interpretation
* 2 Calculation formula
* 3 Advantages
* 4 Disadvantages
* 5 References

## 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:

[math]\displaystyle{ \textstyle{\begin{align}\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{align}} }[/math]

## 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.

## 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.

## References

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

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