Financial health - how do you measure up?

Abstract

Financial economics is based on the tenets that we prefer more to less and that we seek to maximise our wealth in order to maximise our happiness. Performance appraisal merely seeks measures of how well we have achieved this objective. If my tax paid wealth at the start of a period was $100 and at the end was $110 how have I done? I’ve earned 10% for sure, but just how well I have performed depends on what other people have earned having invested similar amounts in assets of similar risk and whether this year’s earning is an improvement on previous years. In principle it is no different when assessing the overall performance of a dairy farm. Sure, there are a lot of other things to take into account, but basically the increase in wealth relative to our investment at the start of the period represents our overall return.