Measurement of Financial Performance

Increases in productivity have their origins at the level of the individual firm and are reflected through improved efficiency. Improved efficiency is brought about by more effective use of scarce economic resources and unless some satisfactory measure exists for the evaluation of the effectiveness of industry in utilising the resources at its disposal, national objectives aimed at securing growth without inflation cannot be incorporated into the individual objectives of industrial firms themselves. Irrespective of the needs of the economy for growth most industrial firms have their own growth targets the assessment of which equally require a reliable measure of efficiency. To be satisfactory, the measure of efficiency employed must permit comparison of performance by firms over time, as well as comparison with other firms in the same industry and, ideally, in other industries also. There is no unanimity of opinion as to what is the most reliable single yardstick of industrial efficiency.