Financial Indicators of Performance Measurement: Reality, Relevance and Distortion

• Main Author: Flavius-Andrei Guinea
• Format: Article
• Language: English
• Published: Ovidius University Press 2016-01-01
• Series: Ovidius University Annals: Economic Sciences Series
• Subjects: measures of financial performance; return on investment; residual income; economic value added
• Online Access: http://stec.univ-ovidius.ro/html/anale/ENG/2016/2016-II-full/s5/21.pdf

The main criticism brought to managers and to managerial accounting systems was the lack of emphasis on the return of the use of invested capital and the excessive focus on the efficiency of production processes. This fact forced the transition to a new view on the way of establishing the strategic objectives measured by financial indicators. The aim of this paper is to demonstrate, through case studies, the relevance and possibilities of manipulation of a series of indicators used for assessing performance: return on investment, residual profit, economic added value, commercial profitability. The relativity and the criticized appraisal of performance only through the means of profit were thought to be solved by implementing other indicators that would link several ingredients of profitability. The conclusions highlight that the remedy promoted by the new sets of financial indicators imposes a considerable cost, represented by the temptation of information distortion.