The Nature and Use of Financial Information

Added on - Mar 2021

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TASK 1 : EXPLORE THE NATURE AND USE OF FINANCIAL INFORMATION1.1: Discuss the need for financial information, its purposes, limitations and the main stakeholdersinterested in the informationNeed for financial information in an organization:Assessing the finance requirementsThe organization needs finance in many areas includes the following, in order to run the business thecompany may require a working capital of 100,000$. In purchasing the physical resources the companymight have to spend approximately between 800,000 and 1,000,000. Since the company has establishednewly, company have to recruit people by conducting interviews, to let people know about theinterview the organization has to do advertising on newspapers, social media, T.V etc. for which it mightcost around 25000$.Obtaining FinanceThere are many sources to obtain finance to the company. Personal savings can be added to financerequired by the company. Can borrow some money from the social circle and for the remaining moneycompany can arrange a bank loan by submitting the documents required by the banks. In case if thecompany is not able to borrow loan from bank as a substitute the company can check with Angelinvestors or Venture capitalists.Reporting to owners/ shareholders/ stakeholdersAccording to the standard pattern financial report will be reported on regular basis so that owners willknow about the status of the company.Setting and meeting targets / Appraising new projectsCompany must have set of targets to achieve, such as paying off all the debts in time, catch morecustomers, open new branches in other states, and etc. Once the company is clear from all the debts,organization can think of setting up new branches in different citiesManaging risk
Company must always have an alternative option if anything goes wrong within the organization.Company must always keep a part of profit separate in order to use it when required the most.Internal versus, external needInternal versus of the company are paying wages, electricity bills, rent, buying new machineries and etc.External includes paying taxes, hired lecturers, rented services and etc.SOURCES OF FINANCIAL INFORMATIONINTERNALFINANCIAL REPORTSA firm or an investor needs to know about financial strength stability and growth about acompany where he wants to invest or do any business activity. There are number of optionsavailable to that person or company.Income tax returnsIncome tax return is 1 of the sources of financial information, different countries/economy hasrate for income tax ranging from 3% to 40%. For examples in Pakistan charges only 3.5% of taxwhere as in Australia it`s 40%. Income tax is direct measure or indicator of a company`s earning.Press release by the companyIt`s an official news issued for the public through media. Company or organizations release inorder to be transparent and they want to keep the public updated.(find examples)Audit reportsDefine or explain what`s auditIn Audit report a company`s annual reports will be given, with the help of these information wecan do comparison between other companies and being well aware where to invest.PayrollBy looking at payroll reports we can know how many staffs are working in a company. If acompany have around five hundred staff, we can come to a collusion that it`s huge companywhich might have good profit.EXTERNAL
External reports are those reports where firm or individual does not contact the targetorganization directly.Media reportsReports are published about companies without the involvement of any particular company.Media search for news about organizations and take it to people and make them aware aboutthe company`s situation weather they are in good position or in bad.Information from vendersVenders are those people who provide goods and service to the company. Talking to venderswill give a very clear idea about the company, if the venders business is going well with thecompany we can assume that the company business as well is in good condition. Where if thevenders business is dull with a particular organization, the company`s business as well will below.Budget announcement by companiesIn the annual budget of different government department the news about these allocated fundsis announced publicly. So all the concerned organizations they can plan in order to take theirdue share because now they know that the said department of the government is likely to dopurchases in upcoming financial year.Financial Information:Financial statement of an enterprise include the following:1.Balance sheet2.Income statement3.Cash flow statement4.Statement of changes in owner`s equity or stockholder`s equity.PURPOSE AND REQUIRMENT FOR FINANCIAL REQUIREMENTS1.Legal requirements:If the company is registered in stock exchange the financial reports must be arranged accordingto the law of the country because there is the need for audit and proper signed balance sheet.To renew the license, contracts and agreements properly managed records are important.2.Tax requirements:
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