Literature ReviewThe major key aspect of financial management is determining the key value of the company and more importantly developing strategies on how to increase it. However, some companies basically measure their value by looking for the year ended financial performance or by evaluating their shareholder value. In addition, there are various governance principles that enable companies to create shareholder value which in other words may be regarded as the value of the company less all the liabilities and debts. According to marketing economy, the value of the company is its defining dimension whereby value is perceived as a useful measure of companys performance as it takes into account the long-term interests of all the stakeholders of the company (Venkatraman, 2001). However, ratio analysis is the best technique to measure the financial performance of a business while strategic and human resource management analyze its growth and success in long run assessment.
Empirical evidence has shown that the management in an organization has a direct influence on the organizational performance. This depends on their qualification and the way they run the organization. The success or failure of any organization depends on leadership and with the changing dynamics and business world as well as the trends in a business. This report will provide a focus on how the non-financial factors and financial factors play a part in the business and financial performance of an enterprise.
Success of Business Defined
Whenever a business exists, financial performance exists. There are many definitions and ideologies on what to check and measure when checking the success or failure of a business. According to (Neely & Ken, 2008) financial performance is about how well a business can remain in business and how well it can pay both its short term and long-term loans. A business with a considerable rate of working capital; that is the rate of the current assets to the current liabilities, meets its daily obligations.
On the other hand, (Venkatraman, 2001) reiterates that the financial performance of an organization depends on the reflection of the financial statements. The additional information on the financial statements provides a background of the real strength of an organization. For instance, the accounting value which is the standard of the shareholders stake in the company reveals how worth the organization is and whether it would stand the test of finances if a number of shareholders pulled out and sold their shares in the organization(Ittner& David, 2008). The shareholders hold the total amount in the company.
Walker & Alan, 2004, feel that the net income ratio is the main determinant of a strong business. It is the difference between the revenue and the operating expenses of the business. The higher or lower the amount indicates that the business has improved in operations and maybe costs of production reduced and the sales revenue increased over the financial period. A good business comes with ways on how to improve their ratios daily and others like (Vickery et al) disagree and claim that the credit terms and repayment period of an organization determine on whether the business is strong financially. The longer the credit days after transaction of business, the healthier the business is and this indicates that the business can fully support itself in the event that the creditor would fail to pay the debt in time.
The return on capital on the amount of money invested by the owners in the beginning indicates that the business operates within profit margins and therefore the financial performance healthy, (Vickery et al). The higher the rate the better indication the rate has on the business. It shows that the management have done a justifiable job with the amounts under their care and generated more of the amount.
Sharma, Subhash& Vijay, 2000, describes the earnings per share on the number of shares held by the shareholders also indicate that the business is doing well irrespective of other factors in the business. Shareholders rest assured that their investments bear fruits and at the end of the financial period, they gain a considerable amount of money in terms of the earnings pegged on one share. This will in turn encourage more people buy the shares once there is an offer to the public.
The dependent variable, success of a business explained by other independent variables like the financial indicators as well as the other non-financial factors and the impact and role they have on the business. As the factors, differ from one business to another due to the wide range of types of businesses and the type of management in an organization. However, all these factors play a role in the direction that the organization takes irrespective of what one considers the indicators.
Hausman, 2001 has his ideology on other factors like the human resource management team of an organization and the active role they play in determining the success or failure of the organization. This is the team in charge of all the hiring and firing of human personnel of the organization. Estrella et al agree and claim that the management have the task of selecting the best team that will help the organization move towards its goals and objectives and avoid making pitfalls in the business environment. They have the mandate of accessing the contribution of employees to the organization and know the way forward in terms of retaining them or letting them go. They also determine the remuneration that a person in the organization is worth.
The management of an organization also plays an active role in determining whether the organization moves in the right direction. A well-qualified organization with the necessary skills and expertise will propel the organization in the right way, (Bove & Johnson, 2001), since they have been in business for long and have the tactics needed in a business in order to survive the competition. A weak management team without proper co-ordination will eventually fail and cause losses on the shareholders equity and the owners contribution too.
The strategic team is the main determinant in the management team as it advices the organization on the right areas where the business can venture in order to earn more returns on the amounts invested. The strategic team stays with its ears on the ground and informs the management on new advancements in technology and advice on where to go to remain ahead of competitors (Robinson, 2001).
If business could control both the financial indicators and the non-financial indicators, they will eventually master the art of having a successful business. They will be able to take control of all factors in the organization and conduct businesses, which will leave an impact in the business world.
The Reference List
Bove L & Lester W. Johnson. (2001) "Customer relationships with service personnel: do we measure closeness, quality or strength?." Journal of Business Research 54.3.Oxford: Oxford University Press.
Estrella, Arturo, and Frederic S. Mishkin. (2008) "Predicting US recessions: Financial variables as leading indicators." Review of Economics and Statistics 80.1. New York: Prentice Hall
Hausman, A. (2001) "Variations in relationship strength and its impact on performance and satisfaction in business relationships."Journal of Business & Industrial Marketing 16.7 Boston: Now.
Ittner D & David F. (2008): "Are nonfinancial measures leading indicators of financial performance? An analysis of customer satisfaction."Journal of accounting research
Neely H. & Ken P. (2008). "Performance measurement system design: a literature review and research agenda." International journal of operations & production management 25.12
Robinson, B. (2002). "The importance of outsiders in small firm strategic planning."Academy of management journal
Sharma, Subhash, & Vijay Mahajan.(2000) "Early warning indicators of business failure."The Journal of Marketing
Venkatraman, N. (2001) "Measurement of business performance in strategy research: A comparison of approaches." Academy of management review
Vickery, Shawnee K., Cornelia Droge, and Robert E. Markland.(2003). "Production competence and business strategy: do they affect business performance?." Decision Sciences.
Walker, E& Alan B. (2004). "What success factors are important to small business owners?." International Small Business Journal
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