Page 80 - CITN 2017 Journal

Figure 3: Performance Measurement and Corporate Effectiveness

Performance measurement is a fundamental principle of management. The measurement
of performance is important because it identifies current performance gaps between
current and desired performance and provides indication of progress towards closing the
gaps. Carefully selected key performance indicators identify precisely where to take action
to improve performance.

Individuals invest for the purpose of growth (Return on Equity, Return on investment) and
for this to be achieved; everybody must be involved in the business or organization. The
process of financial reporting, financial statement analysis, and valuation is intended to
help investors and analysts to deeply understand a firm's profitability and risk and to use
that information to forecast future profitability and risk and ultimately value the firm,
enabling intelligent investment decisions. This is the role of the financial accountant while
the management accountant is involved in decision making.

The management accountant measures, analyzes, and reports financial and nonfinancial
information that helps managers make decisions to fulfill the goals of an organization.
Management accounting (a) emphasizes the future, (b) aims to influence the behavior of
managers and employees in achieving the goals of an organization, and (c) is not
particularly constrained by generally accepted accounting principles (GAAP).
Furthermore, the financial accountant focuses on reporting to external parties, such as
investors, government agencies, banks, and suppliers. It measures and records business
transactions and provides financial statements-the balance sheet, income statement,
statement of cash flows, and statement of retained earnings-based on GAAP.

This process lies at the heart of the role of accounting, financial reporting, capital markets,
investments, portfolio management, and corporate management in the world economy.
When conducted with care and integrity, thorough and thoughtful financial statement
analysis and valuation is a fascinating and potentially rewarding activity that can create
tremendous value for society. However, as the recent financial crises in our capital markets
reveal, when financial statement analysis and valuation is conducted carelessly and

73