Question

Provide an explanation for the financial perspective. Include a business example which demonstrates how a company would measure its performance to determine if its overall business strategies were a success. Explain how the company’s quantitative performance on its financial statements affects the company’s value to stockholders.

Answer 1

Financial Perspective is related to the profitability of an organisation. How the company is functioning over a period of time from the Revenue and Profitability perspective is the study matter of Financial Perspective.

Profit and Shareholder's Wealth Maximisation are the primary purpose of Business and same are covered within Financial Perspective which makes it even more important study point.

Business Example: Trend Analysis may be helpful for Business to analyse the financial perspective.

	Year 4	Year 3	Year 2	Year 1	Year 0
Total Revenue	1515	1435	1156	1072	1052
Net Income	162	156	132	122	110
	Year 4	Year 3	Year 2	Year 1	Year 0
Total Revenue	=(1515/1052)*100	=(1435/1052)*100	=(1156/1052)*100	=(1072/1052)*100	=(1052/1052)*100
	144%	136%	110%	102%	100%
Net Income	=(162/110)*100	=(156/110)*100	=(132/110)*100	=(122/110)*100	=(110/110)*100
	147%	142%	120%	111%	100%
From the above Trend Analysis, it can be concluded that Net Income grew faster than Total Revenue during the period Earning per share and Price to earning ratio, book value per share, market value per share, may be used to analyse the value of Shareholder's Wealth. The same are derived using Financial Perspective. Increase in Revenue leads to increase in Profits which increases Shareholder's Book Value per share due to increased Profit Reserves.