SITXFIN002 – Interpret financial information
In this unit of study you will learn to;
- Access and interpret financial information
- Use and provide financial information
Introduction
Financial transactions are an extremely important part of any business operation – after all if your organisation wasn’t earning any money it wouldn’t be in business and you, therefore, would not have a job. So great care must be taken when dealing with finances both incoming (money the customers pay you) and outgoing (money you pay to suppliers) to ensure the organisations continued financial success. In dealing with these finances you may be required to analyse a range of financial informationcontained in various documents. These documents may deal with such things as ledgers, subsidiary ledgers and journals. They might also include information about day to day financial transactions such as receipts and disbursements as well as invoices, accounts payable, debtors and creditors and cash flow.
Then, too, the information contained in these documents may relate to specific industry sectors, and this may even be influenced by where your organisation’s head quarters is located.
For example, information that may vary according to specific industry sector and organisation may relate to:
- financial terminology relating to the organisation’s specific financial reports. An airline, for example might have FUD Reports (Flight Uplift and Discharge) that provide detailed records of what class of travel passengers booked, what sectors they flew and how much revenue was generated by these passengers over a given period of time. An example of such a report is provided, with explanations of their use and purpose, in Appendix A.
- reporting periods and different financial years observed by different businesses. Depending on the type of business, and where they are headquartered, financial reporting periods may differ. In Australia, for example, the normal financial year begins in July and ends in June. In the United Kingdom the financial year ends in March and in the United States it ends in September. So if you worked for a British based company this would influence the manner in which financial reports were issued and analysed, and might impact on any subsequent planning.
- key features and functions of accounting software programs used to manage financial operations. Most organisations today will use a software program of some description to control their finances. In some cases these may be industry related and purpose built for those industries. An example would be computer reservation systems (CRS) such as Galileo and Amadeus that have back end software that record transactions and provide a range of financial reports. Other options include off the shelf software, that can be computer or mobile based, such as Quickbooks or MYOB.
- use of financial information and reports in monitoring overall business performance – we will look at this aspect of business analytics in more detail later in the unit.
Access and interpret financial information.
Why is it so important to have accurate financial information? In the mid 1500’s Sir Francis Bacon said “knowledge is power” and this is as true today as it was 500 years ago. Aside from the need for correct financial information for taxation and auditing purposes, then, the more information you have, the better the decisions you can make; decisions based on facts. So the interpretation of financial information is of extreme importance to the success and future of any organisation.
Identify and interpret the range of financial information
Depending on the nature of your business, and your role within it, you may come across and need to deal with a range of different information and it is important that you understand the way in which this information is collected and its purpose. You might need this information to:
- Track the organisation’s performance against KPI’s
- Forecast next year’s sales and/or budgets
- Prepare for an internal or external audit
- Prepare financial reports for stock holders and so on
Questions you need to able to answer in planning future steps of the business would include;
- how did you do, financially, last year?
- How are you tracking so far this year, in comparison, and will you achieve your financial goals? If not do you know the reasons why?
- Have you accurately forecast your business needs (including budgets) for next year … and does this forecast reflect what is happening around you in the greater business environment?
The answers to these, and many other, questions lie in the financial information and reports that your organisation should be keeping. In order to accurately and effectively analyse your organisation’s financial information, however, you will need an understanding of key elements of the accounting system and how it provides information for business management. …. continued in learner guide ….
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