The financial information is data such as credit ratings, account balances and other monetary data about a person or organization, which are used for billing, credit assessment, loan transactions and other financial activities.
Financial information must be processed in order to conduct business, but it must also be handled carefully by companies to ensure customer safety and avoid litigation and bad publicity that can result from negligent or inappropriate use.
Financial information is diverse and can be multi-faceted, depending on the reviewer and the purpose of the study. It also includes information that is kept in order to acquire a credit or loan, access accounts or initiate a transaction.
Many corporate data summaries provide financial information that management relies on to make decisions and direct operating activities toward financial success.
Structured representation
Financial statements are a structured representation of the financial positions and financial performance of an entity. They are a formal record of financial activities and the position of a company, person or other entity.
Relevant financial information is presented in a structured and easy-to-understand manner. They typically include basic financial statements, accompanied by management discussion and analysis.
The objective of financial statements is to provide information on the financial position, cash flows and financial utility of a company, which is of benefit to a wide scale of users in making economic decisions.
The financial statements also show the results of the administration of the resources entrusted to management. To achieve this objective, financial statements provide information about the assets and cash flows of a company.
This financial information, along with other information in the notes, helps users of financial statements to predict the company's future cash flows and, in particular, their timing and certainty.
Characteristics
The financial information that is presented in financial statements should have some key qualities that make it useful to users.
Generally accepted accounting standards describe such standards in their frameworks, categorizing them as fundamental qualitative characteristics.
Understandability
Financial information must be easily understandable to users with reasonable knowledge of business and economic activities.
This means that the information in the financial statements must be presented clearly, with additional information provided in the footnotes, as necessary, to aid in its clarification.
Relevance
Financial information must be relevant to the decision-making needs of users, which is the case when the information influences the economic decisions of users.
This may involve the presentation of particularly relevant information, or information whose omission or inaccuracy could influence the financial decisions of users.
Reliability
The financial information must be free of material errors and bias, it must not be misleading.
Therefore, the information must faithfully represent transactions and other events, reflect the underlying substance of events, and prudently represent estimates and uncertainties through appropriate disclosure.
Comparability
Financial information should be comparable to information presented for other accounting periods, so that users can identify trends in performance, as well as the financial position of the reporting entity.
Puntuality
Disclosure of financial information should be required not to be unduly delayed.
What is it for?
Financial analysts rely on financial information to analyze a company's performance and make predictions about the future direction of the company's share price.
By understanding financial information, you can make sense of stock market fluctuations, as well as the most important concepts investors pay attention to when buying or selling assets.
With this knowledge, you can also see why some companies are ahead of the competitive pack, while others are experiencing tribulations.
Analysis of financial information can be done through trend assessments, ratio analysis, and financial planning models.
Financial information system
Records and analyzes financial data that is used for optimal financial planning and forecasting decisions and results.
It is used, in conjunction with a decision support system, to help a company achieve its financial objectives, because they use a minimum amount of resources in relation to a predetermined margin of safety.
A financial information system can be thought of as a financial planner for e-commerce, which can also produce large amounts of financial and market data, simultaneously obtained from financial databases around the world.
A well-managed financial information system is essential for a company, as managers need the resulting information to make decisions about how to manage the organization. This system can serve in many ways, including the following:
- Ensure that there are sufficient funds available to pay the obligations as they become due for payment.
- Locate surplus funds to be used in appropriate and reasonably liquid investments.
- Determine which customers, products, product lines and subsidiaries are the most and the least profitable.
- Locate the areas that are bottlenecks within the business.
- Determine the maximum amount of funds that can be safely distributed to investors in the form of dividends.
- Determine the maximum debt load that the organization can bear.
Financial information flow
A financial information system is an organized approach to collecting and interpreting financial information, which is generally computerized. It is a form of real-time operating system that works to improve the flow of financial information.
The results of the accounting data produced by a financial information system can include:
- Operating and capital budgets.
- Working capital reports.
- Accounting reports.
- Cash flow forecasts.
The predictive analytics included in these applications could also reduce the accuracy of what you might expect from a business transaction or interaction that has yet to take place.
There are several ways to extract information from a financial reporting system, including structured reports that run periodically, metric analyzes, cash forecasts, and what-if analyzes.
Relationship of the financial statements
The balance sheet, the income statement and the cash flow statement are interrelated. The income statement describes how assets and liabilities were used in the established accounting period.
The cash flow statement explains the cash inflows and outflows, and will finally reveal the amount of cash the company has on hand, which is also reported on the balance sheet.
By themselves, each financial statement provides only part of the history of a company's financial condition; together, they provide a more complete picture.
Shareholders and potential creditors analyze financial statements and a series of financial indicators to identify the financial strengths and weaknesses of a company and determine if it is a good investment / credit risk. Managers use them to aid in decision making.
Sources of financial information
Budgets
They allow organizations to assess the business impact of activities and decide whether they are worth pursuing or changing course.
Corporate workflows are reviewed to highlight areas where the business is losing money and to see if money could be saved by avoiding overspending, with stricter restrictions.
Pro forma reports
They offer financial information based on the projections or assumptions of corporate management. Show if this thought process collides with or is in line with the market consensus.
For example, if management predicts an industry growth rate of 10%, while the market consensus hovers around 6%, investors may think that the organization's leadership is too optimistic or has lost touch with competitive reality.
Production worksheets
They provide valuable data on a company's production processes, as well as the tools, procedures, and methodologies to rely on to produce goods at affordable prices.
You can see how much the company spends on each product and the money that is paid to store production items such as raw materials, work in progress, and finished products.
It also indicates how much the business spends on labor costs and whether labor costs can be lowered by reducing the workforce or overtime allowed.
financial statements
They are written records that convey the activities and financial conditions of a business. Essentially, they are the treasure trove of financial information, which investors review before making asset allocation decisions.
Financial statements are intended to present the financial information of a company as clearly and concisely as possible, both for the entity and for readers.
They are often audited by government agencies, accountants, firms, etc. to ensure accuracy and for tax, financing or investment purposes.
One of the most important sources of reliable and audited financial information is the annual report. This contains the financial statements of the company. The three main financial statement reports are:
Balance sheet
Provides an overview of assets, liabilities, and equity as a snapshot in time, usually at the end of the fiscal year.
The balance sheet identifies how assets are financed, either with liabilities, such as debt, or with equity, such as retained earnings or additional paid-in capital.
Statement of income
Unlike the balance sheet, the income statement covers a range of time. This range is one year for annual financial statements and one quarter for quarterly financial statements.
Provides an overview of income, expenses, net income, and earnings per share.
Cash flow statement
Reconcile the income statement with the balance sheet in three main business activities. These activities include operating, investing and financing activities.
Operating activities include cash flows from regular business operations. Investments include cash flows from the acquisition and disposal of assets, such as real estate and equipment.
Financing activities include cash flows from debt and investment capital.
International standards
International Financial Reporting Standards (IFRS) are a set of international accounting standards that establish how particular types of transactions and other events should be reported in financial statements.
IFRS are issued by the International Accounting Standards Board (CNIC) and specify exactly how accountants must maintain and report their accounts.
IFRS were established to have a common accounting language. Thus, companies and accounts can be understood from one company to another and from one country to another.
Its objective is to maintain stability and transparency throughout the financial world. This allows companies and investors to make informed financial decisions, since they can see exactly what has been happening with a company in which they wish to invest.
World standard
IFRS are standard in many parts of the world. For example, in the European Union and many countries in Asia and South America, but not in the US.
The countries that benefit the most from these standards are those that do a lot of international business.
Proponents suggest that adopting IFRS globally would save money on both comparison costs and individual investigations. In addition, it would allow financial information to flow more freely.
IFRS standard requirements
IFRS covers a wide range of accounting activities. There are certain aspects of business practice for which IFRS sets mandatory rules.
Statement of financial position
Also known as the balance sheet. IFRSs influence the way the components of a balance sheet are reported.
Statement of comprehensive income
It can take the form of a statement, or it can be divided into a profit and loss statement and a statement of other income.
Statement of changes in Equity
It is also known as a statement of retained earnings. Documents the change in the profitability of the company for a given financial period.
Cash flow statement
This report summarizes the financial transactions of the company in a given period. The cash flow is separated into Operations, Investment and Financing.
see also finance and business knowledge
