The impact of the banking sector development on the financial performance of the communication sector in sierra leone

2.7 Financial Performance and Performance Indicators 
Financial performance in literal terms means, an extensive evaluation and 
assessment over a given time frame of the financial standings and health of a 
given firm. Performance evaluation of firms is also considered as a control tool 
which is used to evaluate the firm’s outputs and also reflect the effectiveness 
of its management. This type of control tool, besides being a method of 
evaluating the degree of success of businesses it also determines future 
trends. 
Performance evaluation plays a crucial role as a source of information about a 
firm’s financial outcomes and the internal operations shown in the financial 
statements. Such information is useful for sound decision making and also of 
great use to investors, stake holder and regulators. (Neely, 1999) stated that, 
Financial evaluation helps determines a firm current position, identifies the risk 
that firms are expose to, determines management capability in generating an 
adequate rate of return and whether investors and stakeholders are realizing 
a reasonable rate of return on their investment. Performance indicators used 
to evaluate an institution varies from organization to organizations and in 
selecting the measures depends on the organizations
’ objectives, in order to 
ensure a true and fair evaluation method that will be of benefit to the institution. 
Davis and Albright (2004) posited that, performance measurement system 
applications are frequently suggested or recommended in order to improve 
strategic implementation and bolster increased institutional performance. 
(Krstic & Sekulic, 2013) also postulated that, present days performance 
measurement models suggested the use of both financial and non-financial 
criteria and in accordance with business model and strategy. 
Performance evaluation of firms is mainly done by applying accounting 
standards and principles in set of financial statement preparation and 
presentations. In lieu to the critical nature and numerous benefits therein, the 
process is undertaken in timely manner to and in a manner that it would be 
easy to verify, interprets and understand. Financial statements are in both 
quantitative and qualitative form which helps users to be able to fully 

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comprehend its content and make valuable decisions. Financial statement can 
serve as road map, for management to direct the operations and activities of 
firms in the right direction to meet present and future challenges for successful 
continuity and sustainability.
Financial performance concept is a conclusive results of management 
decisions, firms
’ strategic policies and cumulative effects on liquidity, liability 
and assets management. The best way to analyze financial position is to 
employ the use of financial ratios in order to calculate vital financial ratios as 
selected by management for at least two to five years for the purpose of trend 
comparison and informed decision making. Ratios are a vital tools to aid firms 
to compare year after year measurement of performance and progress. 
Financial ratios are effective tool to compare two or more component of 
financial information. Financial data are expressed in ratios or percentages and 
important that, they are analyze collectively. In as much as ratios have 
limitations and explain little about the firm
’s financial history, one good ratio 
result and or with bad results cannot form a basis of management decisions, 
as it is of great importance to review the ratios over the past years to determine 
the trend. Management can carefully make informed decisions on the nature 
of the trend established from the analyzed ratios.
Profitability ratios tells us about how effective and efficient management is 
using available resources to generate profit on a firm’s assets. It is important 
to make profitability analysis in order to asce
rtain the firm’s direction and also 
understand its current position for better decision making. The preferable 
profitability indicators are assets returns (ROA), equity returns (ROE), and net 
interest margin (NIM). Profitability ratio indicators for firms may be used to 
calculate profitability and firm’s health.
(Do, "et al"., 2020), postulated that Return on Assets (ROA) is a significant 
measure of an entity’s profitability compared towards the total assets. The 
Return on assets provides investors with an understanding of how effectively 
management invests its capital to produce earnings. The ratio is displayed as 
a percentage and computed by dividing the total yearly earnings or, in other 

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words, the total income net after interest and taxes to total assets and the 
higher the better (Net Income /Total Assets). The Return on assets definition 
is as follows: