Table of Contents INTRODUCTION...........................................................................................................................3 MAIN BODY...................................................................................................................................3 Various stakeholders that are interested in financial information.........................................3 The way in which financial information is communicated to stakeholders..........................5 Type of financial information required for taking decisions.................................................6 Evaluate types of financial statements...................................................................................7 ........................................................................................................................................................10 CONCLUSION..............................................................................................................................11 REFERENCES..............................................................................................................................12
INTRODUCTION Management is an important function of Manager of the organization. It involves various functions and Finance Manager of the organisation plays an important role in improving the performance of the business. Leadership is an important function of the Leader of the company. Leader of the firm helps to analyse and predict the future performance of the firm. The Report willbebasedonIBM.InternationalBusinessMachinesisatechnologyfirmanditis headquartered in New York, US. Company deals in hardware and software, also offer services of cloud computing etc (Traina,2018). The Report will outline the users of financial information, the way in which information can be communicated to the stakeholders of the firm. The Report will further explain various types of financial data required for making decisions, evaluation of various types of financial statements of the company. MAIN BODY Various stakeholders that are interested in financial information. Stakeholders – Stakeholders of an organization are the individuals or group that are interested in the operations, outcomes of the firm. Stakeholders can impact and they can also be affected by the decisions, policies of the company. There are various types of stakeholders that are interested in receiving financial information of IBM such as - External stakeholders- Shareholders - Shareholders of IBM are the actual owners of the company, and they are interested in getting information in respect of financial operations of the firm. They want to know the solvency of the firm because they have invested their funds in the company. Financial Institutions - Financial Institutions, Banks are also keen in receiving financial information of IBM to know profitability and solvency of the firm because they have provided short term as well as long term funds to the firm. Government -
Government departments also requires information in respect of financial performance of IBM because this will help the government to determine whether tax returns filed by firm are correct or not. Internal stakeholders- Employees - Employees of IBM are also interested in receiving financial information of the firm because their compensation depends upon profitability of the company. Management – Management is one of the internal stakeholder of IBM and Managers of the firm require financial information to determine the financial position of the company. It also helps the management to take various important decisions (Xu, C. and Shiina, 2018). Stakeholders Mapping – Stakeholders mapping refers to developing a map for identifying, evaluating and making the list on the basis of priority of various stakeholders of the organization.Stakeholders Mapping also helps the firm to communicate effectively with internal as well as external stakeholders of the firm.There are various steps to develop a stakeholders map. Firstly, the company have to identify the different types of stakeholder that are interested in the operations of IBM such as Internal stakeholders like management, employees etc. and external stakeholders like financial institutions, government etc. Then, company will evaluate the expectations of the above stakeholders from the firm. The extent to which these stakeholders are influencing IBM. Now company will prioritise the needs of these stakeholders on the basis of which firm will manage them. IdentifyAnalysePrioritise Engage
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At last, firm will decide the way in which it will communicate with stakeholders to win their support. Company will adopt various methods for communicating the financial information regarding the financial position of the firm. The way in which financial information is communicated to stakeholders. Financial information refers to the data and information related with the financial transactions performed by the business during a particular period. IBM communicates financial information regarding the operations of the firm through financial statements such as Income Statement, Cash flow statement and Balance sheet. Communicating the relevant financial information to internal and external stakeholders is very important and it is one of the challenging task for the business. There are different various in which IBM can communicate financial information to internal as well as external stakeholder (Sahay, M.R. and Cihak, 2018). These are as follows - ï‚·One of the most important method for communicating the financial information to internal and external stakeholders of IBM is through Annual Report. The firm can effectively communicate accounting and financial information to stakeholders such as employees of the firm, management, shareholders etc. ï‚·Annual Report is one of the important method that IBM considers as a part of its communication strategy related with financial information. It helps the firm to update the investors, shareholders, Government in respect of the financial performance and actions that IBM will take in the future. Effective communication of financial information helps
IBMtoimprovetherelationshipwithinternalandexternalstakeholdersofthe organization. Another way of communicating financial information to various stakeholders of IBM is by preparing budgets related with different functions of the organization. Budget helps the firm to communicate different types of strategies of the company to potential investors, workers, management of the firm (Olafsson, A. and Pagel, 2018). For Example – Developing the budgets related with marketing will help the employees that are working in marketing department of IBM in respect of developing marketing strategies, amount to be incurred on marketing activities etc. IBM should also adopt another method of communicating financial information on annual basis through newspaper such as Business Standard etc. for communicating the information to internal and external stakeholders of the company. Communicating the financial information through different ways will help potential investors to analyse the financial position, solvency and future growth prospects of IBM. This will also help the employees to determine the likelihood of increase in their salary on the basis of financial performance of the firm. Company should provide information on the website of IBM and it should also publish its financial statements like balance sheet, income statement in newspaper etc. This will help financial institutions and banks to evaluate the solvency and profitability of IBM because they provide the funds to the company. Communicating the financial information through press release, newspaper will also help Government authorities to determine whether IBM is following all the laws or not (Mitchell, G.E. and Calabrese, 2018). Type of financial information required for taking decisions. Financial Statements of the company plays an important role in providing information in respect of financial health of the firm during a particular period and also provides information regarding financial position at a particular point of time. There are three important types of financial reports that helps IBM in making decisions. These are Balance sheet, cash flow statement and income statement. Balance Sheet -
Balance sheet provides the information related with financial position of the organization. It helps IBM to know the position of assets and liabilities of the firm at a particular point of time. Balance sheet provides the detail regarding the solvency of IBM, various types of trends etc. Such type of information helps the organisation take decisions related with type of investments IBM should make etc. Income Statement - Company also requires information related with sales, profitability and expenses of the firm. So that, it can take various types of decisions such as introducing new product line, new distribution channels etc (Miles, 2018). Income Statement of IBM helps to take different types of decisions by providing financial information in respect of income and expenses of the firm during a particular period. Cash flow statement - Cash flow statement provides information regarding the cash inflow and cash outflow from various sources. This will help to identify whether IBM is having ability to generate sufficient cash for maintaining the solvency of the firm or not. Financial statements of the company helps to take different types of decisions in IBM such as Reducing the cost of production, improving the profitability and sales of the firm. Investment decisions- Analysis of financial statements will help IBM to take investment decisions such as investing the funds of the organization in fixed or current assets etc. Financing decision- Financial information also helps IBM to take financing decisions like allocation of funds in different activities etc. Dividend decision- Annual Reports helps the firm to take decisions in respect of whether to distribute the profits to shareholders in the form of dividend or to retain it (Jones, R. and Jenkins, 2018). Evaluate types of financial statements. Income Statement -
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It is one of the main part of financial statements of the organization. It provides the financial information regarding the revenue, expenses and overall profitability of the firm during the particular period. The above income statement of IBM is reflecting the comprehensive earnings and expenses of the company for year 2016 and year 2015 (Huong,2019). It is prepared while following all the Generally Accepted accounting principles. Management of IBM ha maintained effective internal control while preparing financial statements. The revenue from services has been increased in year 2016 as compared with year 2015. While income from sales has decreased from last year. Net income in year 2016 is $11872 it has decreased as compared to last year. Balance Sheet - Figure1:Income Statement, 2016 Source : (Income Statement, 2016)
Balance Sheet is also an important part of financial statements of the company. It reflects the position of total assets and liabilities at a particular date. The above balance sheet of IBM is reflecting the financial position for year 2015 and 2016. Total assets of the firm in year 2016 is $36,492 it has increased from last year and total equity and liabilities in year 2016 is $ 36,492 this has also increased from last year (Easton, M. and Sommers, 2018). Figure2:Balance sheet, 2016 Source : ( Balance sheet, 2016)
Cash flow statement - Figure3:Cash flow statement, 2016 Source :(Cash flow statement, 2016) Cash flow statement is also one of the important part of financial statements of the firm. It reflects total cash inflow and outflow during a particular period. The above cash flow statement of IBM is reflecting the position of cash-flow for year 2015 and 2016. Cash inflow from operating activities has been increased up to $16958 as compared to year 2015. Comparison between cash flow, income statement and balance sheet - There are various differences between cash flow statement, balance sheet and income statement of the organization. Such as -
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Income Statement of the firm reflects the gross income, operating income and expenses of the organization for a particular period . It is the best indicator of the overall profitability situation of IBM. Whereas, balance sheet of the organization is reflecting the financial position of the firm at a particular period. It shows the position of total assets and liabilities of IBM. Cash flow statement of the firm reflects the sources of cash inflow and usage of cash in different activities such as operating, financing and investing etc. Accounting techniques- Income Statement of IBM has been prepared by using multi step method for presenting the information regarding income and expenses in different categories. Balance sheet of the company has been prepared in Report form in which assets are presented above and liabilities and equity are presented below. Cash flow statement has been prepared by using indirect method for presenting information in separate categories (Crowther, 2018). CONCLUSION The above Report has outlined that there are various stakeholders that are interested in financial statements of the firm like shareholders, government etc. Company can adopt different ways for communicating financial information to management, employees through annual report etc. The Report has also described that firm requires financial information for taking investment, dividend decisions etc. There are various differences between cash flow, income statement and balance sheet of the firm.
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