What is the Financial Information to Stakeholders? Definition, Importance, and Objectives Essay; It is knowledge concerning money transactions a few person or business; samples of money info are payment histories, Credit Card numbers, credit ratings by third parties, money statements, etc.
Here is the article to explain, Financial Information Definition, Importance, and Objectives Essay!
Financial information exists employed by investment corporations, creditors, lenders, associate degreed management to gauge an entity; whereas mistreatment money info the safety of the data ought to exist ensured as a result of misuse of it may happen by third parties. The finances help analyze a company’s money position and provide an image of the performance of a business.
Definition of Financial information;
Financial information contains in annual reports that the companies exist published periodically. That period stands identified as reporting period. The company obligates to provide financial information to their various stakeholders during the past reporting period. The annual report is a report the company reports their comprehensive transactions and events to publish and provide for required parties.
There are a few reasons to publish annual reports by companies generally as follows. Because companies have legal obligation between companies and the government act implemented for companies exists known as company act 2007 No 7. The company act’s sections 150, 151, 152, and 153 have mentioned the obligation to prepare financial statements, content, and form of financial statements, obligation to prepare group financial statements, and content and form of group financial statements accordingly.
Stakeholders of the company require financial information for the following reasons.
- To know how well the company is doing.
- To find the company has earned more money than they spent.
- Also, To get an idea about the strategic and tactical plans of the management.
- To provide information to make decisions who make decisions about the organization.
- Avoid dissimulations and corruptions of the organization.
Through the audit process, organizations will be able to identify weaknesses of their control of procedures and corruptions that occurred due to them. To obtain and fulfill the financial requirements from monitory markets via financial types of equipment such as shares, debentures, bank loans, etc.
Importance of Financial Information to Stakeholders;
However, financial information exists required by stakeholders of the organization. Stakeholders of the organization can divide into two. The bellow chart represents the stakeholders of the organization according to the environment they belong to. They are two types;
- External stakeholders; Suppliers and Trade creditors, Government, Consumers, Public, and media.
- Internal Stakeholders; Directors & Managers, Shareholders, and Employees.
The above chart shows the deviation of stakeholders of the organization and they require financial information due to various purposes.
Directors and Managers;
To make decisions about the organization at different times and different levels. Directors and managers of the organization are taking different types of decisions as follows.
- About new investment and project appreciation decisions.
- About continued and discontinued operations.
- Dividend decisions.
- Diversified business decision.
- Winding up decision.
- To establish overall objectives and periodical targets.
- To avoid dissimulations and corruption.
- Also, To establish squired systems and strengthen control of procedures.
- To increase the productivity level of the organization.
Shareholders;
- To determine whether their investment will sale, Holt or bought more shares of the organization.
- To decide the fairness of the return for their investments.
- Also, To determine the going concern of the organization.
- To obtain wide knowledge about organizational activities.
- To compare their investments and their benefits with other competitive organizations and industries.
Employees;
- To know about the stability and profitability of the employer.
- To know about remuneration, retirement benefits, and employment opportunities are in an organization
- Also, To ensure job security with the current employer.
- To ensure the fairness of the salaries and wages they obtain from the organization according to their earnings.
- To have a clear view about other operations of the organization.
Suppliers;
- To ensure their payments of supplies will receive on due.
- To ensure the stability of their customers.
- Also, To know about other products and their suppliers of the organization.
- To compare their transaction with existing and other companies
- To find other competitive suppliers and their contribution to the organization.
- They find opportunities to supply more.
Government;
- To collect accurate taxes and amounts from organizations on due dates.
- To provide government benefaction to improve their business.
- Also, To obtain financial and non-financial assistance for government development projects.
- To ensure the organizations reasonably oversee their employees.
- To ensure the organizations’ compliance with government rules, regulations, and acts established by the government.
Consumers;
- To know the cost structure of the products that the organization is producing.
- To ensure the stability of the organization.
- Also, To know about the organization’s profitability, because profitability is a shed light to know about products impossible growth, improvements, best customer service, and low price strategic implications.
- To know about CSR programs conducted by the organization.
Public;
- To be conscious about the organization’s substantial contribution to society.
- To know about the opportunities to link with the organization.
- Also, To know about CSR contribution towards the country.
- To conscious their activities which can affect to the interest of the nature and the country.
Purpose or Objectives of Financial Information;
The following Financial Information Purpose or Objectives below are;
- Financial Information is very costly data. It shows the monetary capability of individuals. So an Institution engaged in issuing loans would like to have information regarding the monthly income of persons so that they can pay the monthly installments of the loan issued. So it is used to judge the liquidity position of an individual or business.
- Big Credit rating agencies like Moody’s, S&P, etc. rely on the Financial data of companies to produce ratings. Companies engage in monetary transactions with several counterparties. So all the transactions are essential data points and need to be analyzed thoroughly to understand whether the credit quality of a company is good or bad.
- For Individuals, Credit Quality is decided by the Credit Score. So to assign credit scores, rating agencies need to study the credit history of the individuals. How much loan has an individual taken throughout their life? How fast did he repay? Was there any default in payment? So all these are financial data that are required to make an informed decision regarding the credit score of an Individual.
- Creditors take the help of the financial data of companies before giving credit. They usually have separate Teams who are engaged in studying this Information to understand whether to give credit to any particular organization or not.
Other Purpose;
- Investors, before investing in stocks of the company, extract Information by reading several Financial Statements to predict the Credit and liquidity quality of a company. This research helps investors to understand whether they should buy or short the stock.
- Information like bank transactions, Credit card usage, and several other monetary transactions are being thoroughly scrutinized by the Country’s Intelligence to track and hunt terrorist activities.
- Private equity Investors study this Information on Start-Up companies thoroughly before investing in them. They buy this information from several third-party sources, and at times they request this information directly from the Start-Ups.
- External Auditors depend highly on Financial Information obtained from several sources to review whether the company’s Financial Statements are reflecting correct information.
