Financial Performance

Analysis of determinant factors of a company’s performance

Author: Gabriela Loagă

Abstract: The purpose of this paper is to present the concept of performance and to identify the methods to measure the performance, in the attempt to answer to one question: which are the factors that determine the performance of a company? More specifically, I have tried to determine the extent to which accounting information contained in financial indicators has an impact over the total shareholder return.

Chapter 1. “Performance” concept There is no universally recognized definition of performance, the concept of performance has many meanings, as it is perceived differently by each of us: ♦performance is success; ♦performance is the result of an action; ♦performance is “a state of competitiveness of the company, achieved trough a level of effectiveness and efficiency that ensures a sustainable market presence”. There are three main guidelines in the definition of performance: ► definition of performance depending on the level of achievement of a company’ strategic objectives; ► definition of performance based on creation of added value; ► definition of performance based on productivity and business effectiveness. In my opinion, firm performance is achieved by balancing and merging the four “forces”: the efficiency of production processes, satisfying shareholders, ensuring customer satisfaction and company growth and development capacity, degree of innovation and use of opportunities.

Chapter 2. Approaches regarding the methods of determining firm performance In this chapter, I have made a short review of the main theories on the company's objectives and the major studies regarding the determinant factors of firm performance.

1) The industry theory originates from the works of E. S. Mason (1939) and J. S. Bain (1951, 1956) - who believed that a firm is performant if it can achieve better market positioning and can maintain at that level through various entry barriers...