ASSESSMENT OF FINANCIAL INDICATORS FOR EVALUATION OF BUSINESS PERFORMANCE

Abstract

The evaluation of small-companies performance includes financial and non-financial indicators of companies. The main source of information about financial indicators of business activities is the financial statements of a company; basing on them there is performed the evaluation of the company’s business activities and financial status. The evaluation of small companies business performance and financial status have a significant role in making financial managerial decisions, as it help assessing the risks and potential benefits planning the perspective performance of the company. Exploration and evaluation of the meaning of financial indicators, successful solution of business management problems can be reached by the development of a single financial indicators assessment system in the context of complex analysis of business performance. Despite the fact that in scientific literature the number of publications on this theme increases, the researchers have not arrived to a common view on the essence and composition of the financial performance indicators, as well as their measurement and assessment methods. The content of the article reveals various theoretical approaches to the understanding of the essence, classification of financial indicators and types of their measurement. According to the official statistical data each day every fourth company faces the insolvency procedure. The data of the Latvian businessmen survey show that the owners of small enterprises need a definite system of financial indicators to manage efficiently the financial situation in the company. As it is known, the most characteristic feature of small enterprises is limited financial resources and difficulties in receiving them. Due to it this theme has become very topical in the context of borrowed capital, for example, getting bank loan. In order to evaluate the creditworthiness of the borrower financial institutions usually use the data about the average indicators of the branch calculated by LR Central Statistical Bureau and LTD “Lursoft”. Ass regards financial indicators there are at least three conditions to be improved: - applied models of financial indicators used by the institutions mentioned above were developed more than 10 years ago and they are considered to be universal, they do not consider the size of the enterprise and the form of business organization; - simple selection of financial coefficients is the basis of these models with any logical interrelations; - the most complex issue is the quality of information included into financial statements basing on which financial coefficients are calculated; international standards are not taken into account and there is no information whether financial statements are drafted according to the international standards. The ratings of companies published basing on such information by financial coefficients sometimes can mislead the users of financial statements taking into consideration the conditions mentioned above. The aim of the paper is to make recommendations on the development of the financial indicators system on the basis of study and generalization of the scientific publications, and analysis of Latvian practice in the field of a company performance, which the owners of small enterprises in Latvia could successfully apply for evaluation of the company’s financial position. The offered system of financial indicators can be used in the future as a basis for developing a complex model for the evaluation of the financial status of small enterprises. In order to reach the aim of the research the following tasks have been put forward: · to investigate the essence of financial indicators and financial ratios, and to show their role in company performance; · to provide critical evaluation of the approach to the evaluation of financial indicators used in Latvia to assess business performance; · to develop recommendations for designing a financial indicators system for evaluation of a small company’s business performance and its practical implementation. The research is based on the analysis and evaluation of special literature and scientific publications on the financial indicators of business activities and their role in the evaluation of business performance. The following methods have been used in the research: logical analysis ad synthesis, content analysis and a monographic method. The articles analyses and evaluates prior researches on the financial indicators of business performance, considered and systematized financial indicators for the evaluation of small companies’ business performance. The results of the give research could be useful not only for the owners of small enterprises in Latvia, but also for private and public institutions having access to financial information about companies performance in Latvia. DOI: http://dx.doi.org/10.5755/j01.eis.0.6.1554

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