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What is the Financial Result?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 23 August 2016
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The financial result is a thumbnail view of the financial operations of a business, showing the difference between total business earnings before taxes compared against the earnings of the business before interest and taxes. Looking just at pre-tax income can conceal important information about how much money a company is paying or earning in interest, and the financial result can provide people with more complete details about a company's financial health. It is usually reviewed in tandem with other financial reporting, rather than as a standalone item.

When businesses calculate income before taxes, they look at all the income they have received for the year before subtracting any deductions for expenses. For the financial result, they weigh this against their income after applying interest payments, both earnings and money paid out in interest. The financial result often turns out to be negative for the company, showing that it took a loss on interest payments.

Paying large amounts of interest is not necessarily a bad thing. The interest could be associated with loans used for business improvement. These necessary loans may contribute to increased profitability in the future, providing the company with a more solid financial footing. As a key performance indicator used to evaluate a company being considered for investment and other activities, the financial result should be viewed in context; if a business doesn't have any outstanding loans used for expansion or equipment acquisition, for example, those large interest payments would be a cause for concern.

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There are some flaws with the financial result. A skewed view of interest payments may develop if the company receives irregular payments; it is possible for the business to take in a lot in interest in one quarter, for example, but to experience a loss in the next. This must be considered when looking at the financial result, as the standalone number may not be very informative.

Companies can list their financial result in mandatory financial filings, as well as prospectuses and other disclosures to shareholders, interested investors, and members of the public. People can also calculate this number manually if they have a company's disclosures in front of them, as they can find the income before taxes and determine the amount of interest earned and paid to determine the company's income before interest and taxes. People interested in analyzing their own investments to develop an appropriate investment plan may do their own calculations to familiarize themselves with the financial standing of the companies they are interested in.

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