Financial result

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Accounting

* Historical cost
* Constant purchasing power
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Major types

* Audit
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Key concepts

* Accounting period
* Accrual
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* Economic entity
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* 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

* v
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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 Accounting context
* 6 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:

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.

## 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.

## Accounting context

In financial reporting, the financial result typically forms part of a company's non-operating income and expense section in the income statement. It reflects the net effect of financial income (such as interest income and dividends) and financial expenses (such as interest expense and losses on financial instruments), separate from operating performance.

Under International Financial Reporting Standards (IFRS), interest expense and interest income are generally presented separately from operating profit unless an entity's main business activity involves financing.[1]

Similarly, U.S. GAAP distinguishes operating income from non-operating items such as interest income and interest expense, which together contribute to income before tax.[2]

## References

1. ↑ "IAS 1 — Presentation of Financial Statements". https://www.ifrs.org/issued-standards/list-of-standards/ias-1-presentation-of-financial-statements/.
2. ↑ "Income Statement". https://www.investor.gov/introduction-investing/investing-basics/glossary/income-statement.

* 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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