Financial effects

Effects from risks and opportunities that affect the undertaking’s financial position, financial performance and cash flows over the short, medium or long term.

The term financial effects encompasses the various impacts of economic decisions, actions, and external influences on the financial situation of a company or individual. These effects can be divided into direct and indirect categories. Direct financial effects directly concern revenues, expenses, profits, and losses, while indirect effects include secondary consequences such as improvements in corporate image, which can lead to higher sales in the long term. Financial effects can also be differentiated into expected and realized effects, which is of great importance for planning and analysis.

A significant example of a positive financial effect is the leverage effect, which describes how debt can influence equity returns. When debt is obtained at more favorable terms than the overall return on capital achieved, the profitability of equity increases. Similarly, economies of scale arise from mass production, granting companies access to cheaper financing options and low-cost effects.In accounting, the recording and assessment of financial effects play a central role. Only those effects that meet the recognition criteria may be reported in the annual financial statements. By analyzing financial effects, companies are able to make informed investment decisions, manage risks effectively, and conduct strategic planning. The precise identification and reporting of financial effects is thus crucial for transparent and sustainable corporate governance.