In economic and financial terms, performance is defined as the profitability obtained after an investment. The return on an investment is usually expressed as a percentage. A percentage that is calculated based on the invested capital.
The concept of yield is also often used in various areas and sectors to refer to the output obtained when divided by the area used.
These are some of the meanings with which the word performance is used:
- Physical: refers to the abilities of an athlete.
- Computational: referring to the way an electronic device works.
- Technological: in relation to technological efficiency.
In economic areas the term performance is often replaced by economic profitability, in a clear allusion to the sector to which it refers. It is also regularly replaced by the word productivity, especially when it is associated with production or manufacturing processes.
The economic performance or economic profitability is used to measure the profit percentage that a company produces based on the resources employed. Therefore, when it comes to economic profitability, the investment is a work unit, such as an employee or a work team, and the return is the profitability obtained from this resource. This percentage does not take into account possible interest or taxes, which would make it a nominal performance. But it does reflect the capital invested as principal.
How to calculate economic performance
The economic return can be calculated in a simple way by applying the following mathematical formula:
RE = BE / AT
RE = Economic performance or economic profitability
BE = Economic benefit
AT = Activo total
This formula and its result are used to interpret the productive and economic capacity of a company. With it you can know how much money A company earns for each economic unit that enters or is invested in it.