Financial Measures:

Financial Measures:

Financial Measures means the measurement of the financial performance of the business and its projects. Performance measures can be defined, to check and measure the efficiency of a business investment which is invested or capitalized in a business project and through this investment they want to measure the business financial performances.

There are many financial performance measurement tools or ratios which helps the business to check and measure the business performance and its financial growth. We have many examples to check out the financial performance and investment outcomes, like ROI –Return on Investment which helps us to measure the total return over investment. The formula which is used for ROI is Net Income of that period divided by the Average total assets. The other measurement ratio is residual income which is profit for the business and we can abstract it from the product of total invest and total rate of return and then subtract it from the total net Income. Actually, that is the amount which a business or individual has after paying off his all debts and liabilities.

ROI and Residual Income formulas are as follows:

ROI: Net Income / Total Average Assets.

Residual Income: Net Income – (Total Investment x Target Rate of Return)

The target rate of return is the pricing method used mostly by the market biggest shareholders or investors and monopolists. You can achieve your rate of return through this pricing method or pricing structure. There are many other methods we have to measure the financial performance but in a simple blog that’s impossible to discuss them. I will write about all of them in my future coming blogs.

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