Definition, Measurement and Evaluation of Financial Performance
Illustration of Financial Performance. Financial performance is a picture of the company's financial condition in a certain period both regarding aspects of fund raising and fund distribution, which is usually measured by indicators of capital adequacy, liquidity, and profitability (Jumingan, 2006: 239).
The company's financial performance is an achievement achieved by the company in a certain period that reflects the level of health of the company (Sutrisno, on Ownership Structure and Financial Performance Indicators Journal).
Financial performance is an analysis conducted to see the extent to which a company has carried out using the rules of financial implementation properly and correctly. Company performance is a picture of the financial condition of a company that is analyzed by financial analysis tools, so that it can be known about the good and bad financial condition of a company that reflects work performance in a certain period. This is very important so that resources are used optimally in the face of environmental changes (Fahmi, 2011: 2).
Measurement of Financial Performance
The company's financial performance is closely related to performance measurement and assessment.
Performance measurement is the qualification and efficiency and effectiveness of the company in operating the business during the accounting period. The performance evaluation according to Srimindarti (2006: 34) is the determination of operational effectiveness, organization, and employees based on the targets, standards and criteria that have been previously set periodically.
Performance measurement is used by companies to make improvements over their operational activities in order to compete with other companies. Financial performance analysis is a critical review process of reviewing data, calculating, measuring, interpreting, and providing solutions to the company's finances in a certain period.
According to Munawir (2012: 31) states that the objectives of measuring the company's financial performance are:
Know the level of liquidity. Liquidity shows the ability of a company to meet financial obligations that must be resolved immediately when billed.
Know the level of solvency. Solvency shows the company's ability to meet its financial obligations if the company is liquidated, both short-term and long-term financial.
Know the level of profitability. Profitability or often referred to as profitability shows the company's ability to generate profits for a certain period.
Know the level of stability.
Stability shows the company's ability to conduct its business in a stable manner, measured by considering the company's ability to pay its debts and pay interest expenses on its debts on time.
Financial Performance Analysis
Financial performance can be assessed with several analytical tools. Based on the technique, financial analysis can be divided into (Jumingan, 2006: 242):
Comparative Analysis of Financial Statements, an analytical technique by comparing financial statements of two or more periods by showing changes, both in number (absolute) and in percentage (relative).
Trend analysis (position tendency), is a technique of analysis to determine whether the financial situation is showing an increase or decrease.
Percentage Analysis per Component (common size), is an analysis technique to find out the percentage of investment in each asset against the total or total assets or debt.
Analysis of Sources and Use of Working Capital, an analytical technique to determine the magnitude of sources and uses of working capital through two time periods that are compared.
Analysis of Cash Sources and Uses, is an analysis technique to determine the condition of cash accompanied by changes in cash at a certain time period.
Financial Ratio Analysis, is a financial analysis technique to determine the relationship between certain items in the balance sheet and income statement both individually and simultaneously.
Analysis of Changes in Gross Profit, is an analysis technique to determine the position of earnings and the causes of earnings changes.
Break Even Analysis, an analysis technique to determine the level of sales that must be achieved so that the company does not experience losses.