Describe the impact of organizational factors on financial performance

FinanceFinance ManagementBanking & Finance

Whether it's about company survival or it is about the company's growth, financial performance plays an important role. Financial performances are influenced by many known factors called organizational factors.

Some may have positive influence and some may have negative influence. So, before going for those factors, examining these factors have immense value for corporations.

Understanding these factors will also minimize negative influence and increase positive influence on performance.

Managers use both financial and non-financial performance in measuring organizational or firm performance and their ability to move towards their financial performance.

The main objective is to increase shareholders value which increases market price and firm shares in the market. Investors' also changing their view and mind set is also changing along with market value.

Financial experts, students and research scholars are giving more emphasis on financial analysis in order to examine the financial position and performance.

The impact of organizational factors on financial performance is explained below −

Liquidity

Liquidity is one the important factors in financial performances. It involves the capability of meeting the debt obligations with available cash and current assets (easily convertible to cash).

Working capital helps to reach the financial performance of a firm and also avoids firms becoming insolvent. Liquid assets of a company are of help, when external sources of finance are not accessible.

Leverage

Company uses debt in asset financing to achieve financial performances. Leverage is used as an alternative to claim the residual in boosting financial performance.

Asset utilization

Asset utilization is crucial to production/service to derive financial performances of a company.Identifying, measuring the capabilities of different assets of a company ensures the attaining financial returns.

Poor utilization of assets leads to poor financial performances.

Size of firm

If the size of the firm is large and has high market share, it will charge more for its products/services. Large firms have negotiation power over their suppliers.

Market share

Company gains more market share to gain upper hand in the market and gain customer satisfaction. This helps companies to strengthen their financial performances.

Sales performances will have a direct effect on company market share.

raja
Updated on 17-Jul-2021 16:46:20

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