Business Financial Information

• This session is recorded and will be available as a resource for students.

Financial Information

• Financial information about a business's activities must be expressed in monetary terms.
• Financial information plays a role in planning, controlling, recording transactions, measuring performance, and decision-making.
• Financial information can be planning, operational, tactical, or strategic.

Qualities of Financial Information

• Accurate financial information requires correct calculations, appropriate rounding, no typographical errors, proper categorization of items, and stated assumptions.
• Complete financial information includes all necessary data, such as external or comparative data.
• Cost-beneficial financial information should not cost more to obtain than the benefits it provides; it should also provide efficient collection and analysis methods.
• User-targeted financial information is designed with the user's needs in mind, presenting either summaries that senior managers may need, or the detail for junior roles.
• Relevant financial information that is not crucial to a decision must be omitted.
• The source of authoritative financial information should be reliable.
• Timely financial information should be available when needed.
• Easily understandable financial information should be clearly presented and communicated through the right communication channels.

Finance and Accounting Activities

• Finance and accounting activities encompass: recording financial transactions, financial reporting, management accounting, and financial management.

Financial Management Sources of Finance

• Sources of finance include: equity shares, preference shares, debentures, bank borrowing, overdrafts, leasing, factoring, trade credit, internal funding, and state funding.

Management Accounting Aspects

• Management accounting involves decision-making and appraisal.

Types of Costs

• Costs include: total costs, variable costs, fixed costs, sunk costs, set-up costs, and direct and indirect costs.

Financial Reporting

• Influences on financial reporting include laws (e.g., Companies Act), the accounting profession, and standards (e.g., IAS).
• Financial reporting generates statements of financial position, profit or loss, and cash flows, which in turn produce ratios.

Performance Measurement

• Performance measurement includes measurements of: profit (gross and net), sales growth, activity (inventory turnover, receivables collection period, payables payment period), liquidity, return on capital employed, and gearing.

Users of Published Accounts

• Users of published accounts include: government, investors, lenders/creditors, customers, and competitors.
• Governments need public companies to be accountable and to disclose financial information in a standardized form according to laws and regulations.
• Investors need financial information to make informed decisions about current or potential investments.
• Banks are concerned with a firm's liquidity when offering credit.
• Customers use financial information to assess the risk of placing expensive or long-term contracts.
• Financial information is used to evaluate a company's financial condition.

Tesco's Key Performance Indicators (KPIs) - The Big 6 (2016)

• Tesco aims to serve shoppers better daily, using six key business performance measures.
• Tesco achieved progress on every KPI, improving customer service, supplier relationships, and sustainable value for shareholders.
• The KPIs are: to grow sales (+0.1%), deliver profit (+1.1%), improve operating cash flow (+39%), build trusted partnerships (+12%), to have colleagues recommend Tesco as a place to work and shop (+11%), with customers recommending Tesco and remaining loyal (+1.2%).
• It requires strong operating cash flow to operate and reinvest in the business.
• They improved and they simplified relationships with suppliers and saw a sharp improvement in supplier satisfaction since last year.

Corporate Governance

• Corporate governance focuses on how firms are managed and controlled, ensuring stakeholder satisfaction and social responsibility.
• Key Players in Tesco PLC Board: Chairman, Non-Executive Directors (NEDs), Senior Independent Director (SID), and CEO/CFO.
• The chairman leads the board and promotes high corporate governance.
• NEDs gives challenges and scrutinize executive proposals.
• SIDs provide sounding board for Chairman.
• CEO/CFO represent management on the board.
• Board committees include Audit, Corporate Responsibility, Disclosure, Nominations, and Remuneration.
• Delegations of operation are passed to CEO, CFO, and Executive Committee.

Environmental Aspects of Finance and Accounting

• The sophistication of accounting practices is dependent on the complexity of the modern economy.
• Accounting is sensitive to the effects of inflation and exchange rates.
• The sophistication of accounting practices is dependent on the complexity of the economy.

Organisational Aspects of Finance and Accounting

• Financial processes will be unique for both large and small firms.
• Internal accounting procedures tend to follow an organizational structure.
• Aspects of the organisation include: Cost allocation, transfer pricing and the global firm, tax issues, competition issues, and protection issues.

Limitations of Financial Measures

• Accounting information and financial measure can be essential to strategic decision-making, but there are limitations: subjectivity and problems of measurement, information and selectivity, political accounting information, short-term versus long-term analysis.