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HomeBusiness TheoryStrategyFinancial information and decision making

Financial information and decision making

Financial information and decision making
Photo by Scott Graham on Unsplash

The finance department of a company generates a variety of financial information that is helpful in decision making, including:

Profit and Loss accounts provide details of whether the business is making efficient use of financial resources.

  • Balance Sheet information provides details of a business’s assets and liabilities, as well as the liquidity of the business.
  • Sales and purchases information setting out particular types of trading and accounts with particular customers and suppliers.
  • Information about the purchase of assets and liabilities.
  • Information about the wages paid out by a business.
  • Information about costs.

By providing a steady and up-to-date flow of information, a business is able to make appropriate decisions about:

  • how to reduce costs
  • how to increase sales
  • how to raise profitability
  • when to purchase new capital assets
  • the best sources of finance, duration, etc.

Financial statements

Budgets are plans for the future. Managers are able to monitor budgets in order to spot variances and make ongoing adjustments to plans. Financial statements such as the profit and loss account and the balance sheet provide information about past performance.

These statements can be compared with the results achieved by similar companies or in previous time periods to identify areas for improvement. For example, if a firm spot that its cost of sales is higher than those of a rival it may seek to switch to an alternative supplier or take other actions such as reducing direct costs.

Financial information provides invaluable statistics and evidence on which managers can make informed decisions and plans.

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