A new method for measuring financial performance of SMEs

Abstract

THE AIMS OF THE PAPER

In this paper I am proposing a new small business financial performance measurement method which can be relevant in the analytical and/or scientific research; where on one hand we are investigating as outsiders and we have access only to second hand publicly accessible financial data as an information source, and on the other hand we are not analysing a single business but rather a collection of data sets.

METHODOLOGY

In order to formalize the method first I will review the existing literature which details the methods used for financial performance measurement and the hardship of these used for small businesses and I will also discuss the reliability and usefulness of publicly accessible financial data with the help of hands on empirical experience of the analyses of an 768 pcs sample size small business data set.

MOST IMPORTANT RESULTS

In my proposed new method the combined financial performance (CFP) composite index is made up of two subindexes: short term financial performance (STFP) and long term financial performance (LTFP). In the STFP I will indirectly touch on the dividend target through the performance of the utilization of assets and employees, furthermore on the value of owner's property through the theoretical corporate value. In the LTFP I included the growth of the net sales revenue, the operational profit and the head count taking into account the changes compared to the beginning of the reviewed period and the changes measured on a year over year basis at the same time.

RECOMMENDATIONS

The method is based on a clear ownership value approach and takes the possibilities presented by the data (its quantity and quality) in account with the literature and empirical experience.