Financial perspective

From CEOpedia | Management online
Jump to: navigation, search

Financial perspective depict the economic results of the company. It is used to assess the success of the company in the long term and the factors by which this success will be achieved. Indicators are selected due to the company's goal and they are grouped in a string of cause and effect, which should bring improved financial results.

Objectives

Objectives for this perspective also shall be selected in accordance with other perspectives. Objectives can vary: from the rate of return on capital (ROE) to the sales dynamic. Selected objectives can vary due to the presence of different phases in the product life cycle within the company and should be subject to periodic verification. At least once a year managers should determine whether adopted strategy is right and change it do reflect changes in environment. In addition, many companies in this perspective takes into account the size of the risk occurring in the adopted strategy. The result of the financial perspective combines results of all other perspectives.

Formulation

Managers who formulate financial perspective base their action on three assumptions:

  • Achieve the required increase in revenues.
  • Reduce the costs and improve performance.
  • Increase the use of assets and efficiency of investment.

Selecting goals in the financial perspective should not be based solely on these three assumption but also take into account the phase of life cycle of company. In the growth phase the financial objective is the growth rate of revenues and increases in sales in target market segments. In the maintenance phase, most companies set financial goals relating to profitability. In maturity stage the main goal is to maximize cash flow. General financial goals during operational phase relate to cash flow and the reduction in working capital.

References

  • Töpfer, A., Lindstädt, G., & Förster, K. (2002). Balanced Score Card. Controlling, 14(2), 79-84.