The Nature and Use of Financial Information
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Added on 2021-03-24
The Nature and Use of Financial Information
Added on 2021-03-24
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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 stakeholders interested 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 the company may require a working capital of 100,000$. In purchasing the physical resources the company might have to spend approximately between 800,000 and 1,000,000. Since the company has establishednewly, company have to recruit people by conducting interviews, to let people know about the interview the organization has to do advertising on newspapers, social media, T.V etc. for which it might cost around 25000$.Obtaining FinanceThere are many sources to obtain finance to the company. Personal savings can be added to finance required by the company. Can borrow some money from the social circle and for the remaining money company can arrange a bank loan by submitting the documents required by the banks. In case if the company is not able to borrow loan from bank as a substitute the company can check with Angel investors or Venture capitalists.Reporting to owners/ shareholders/ stakeholdersAccording to the standard pattern financial report will be reported on regular basis so that owners will know 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 more customers, 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 REPORTS A firm or an investor needs to know about financial strength stability and growth about a company where he wants to invest or do any business activity. There are number of options available to that person or company. Income tax returnsIncome tax return is 1 of the sources of financial information, different countries/economy has rate for income tax ranging from 3% to 40%. For examples in Pakistan charges only 3.5% of tax where 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 in order 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 we can 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 a company have around five hundred staff, we can come to a collusion that it`s huge company which might have good profit.EXTERNAL
External reports are those reports where firm or individual does not contact the target organization 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 about the 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 venders will give a very clear idea about the company, if the venders business is going well with the company we can assume that the company business as well is in good condition. Where if the venders business is dull with a particular organization, the company`s business as well will be low.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 their due share because now they know that the said department of the government is likely to do purchases 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 according to 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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