Financial & Non financial Data - Analysis of the company, Investing in Stock Markets Video Lecture | Investing in Stock Markets - B Com

now the important thing in connection
with management's information is what do
we do with it why does management
actually collect information within the
context of running a business you can
see here that information relevant
information is collected in order to
plan we talked about planning we're
talking about putting together budgets
formulating the steps that have to be
implemented in order to reach the
objectives of the organization also as
one can imagine information is collected
in order to take decisions decisions
cannot be taken in the abstract they
have to be based on a concrete reading
of what's going on and for that purpose
one has to have good information about
what the market is doing what customers
want to have what the costs will be for
producing things and so on so
decision-making is a central reason why
management information has to be
collected and finally the idea of
control or for supervision purposes in
order in order to monitor the activities
of the organization as it goes along to
see whether it is performing according
to expectations or according to budget
so these are the three principal reasons
why management information is is
collected and used
now let's just make sure that we
understand what the main differences are
between financial accounting and
management accounting financial
accounting that's over here on the Left
financial accounting is is concerns the
putting together of a financial
presentation of a company for use by
shareholders for example the annual
report will contain the financial
accounts of the business this is for the
public to be able to use this is
required by law this is this has got to
do with financial statements which were
audited and read by the public by
shareholders by banks that are lending
to the company or really anybody who has
who obtains the annual report of a
company may want to decide whether or
not they're going to invest in the
shares of the company even competitors
can obtain an annual report of companies
and read and examine their financial
accounts now the financial accounts are
usually audited and they're presented in
a we call a regulated format which means
that they follow certain rules and and
principles of accounting so you could
think of this as being more the formal
side of presenting the company
accountable now match meant accounting
is something quite different this is for
internal use and therefore we can refer
to this as being kind of freestyle
accounting freestyle in the sense that
the the format of such management
accounting doesn't have to follow
general principles it can be adapted to
the specific needs of the business and
they don't have to be audited what's
important here was met with management
accounting the information that goes in
is that it should be accurate and it
should be relevant to the needs
of the business the company is not
obliged to keep management accounting
reports however it's advisable that they
do a company which doesn't have a system
of management accounting and focuses
only on the presentation of financial
accounting reports at the end of the
year is a business that is in danger of
not being able to plan make good
decisions or to control their business
so remember these these three key point
there is another distinction between
financial accounting and management
accounting which is very useful to keep
in mind and that is Financial Accounting
deals with financial information whereas
management accounting is broader
management accounting looks at
non-financial indicators as well in
terms of how well the business is
operating let's take an example if
you're in the fast-food business you
probably want to be measuring how long
it takes so the time to produce a
hamburger now this is an operating
efficiency measure which has financial
implications but in and of itself it is
not a financial measure we're simply
measuring how much time it takes to cook
a hamburger so this would be typically
the kind of information which would be
of interest someone who is supervising
the food production in the kitchen of a
fast-food or any kind of restaurant
business because the the time it takes
to get the food to the customer may be
an important competitive angle that has
to be that has to be done that has to be
taken into account by
banishment now just uh this is perhaps a
little bit more theoretical but just
keep in mind formally speaking the
distinction between data and information
data is simply facts and figures we say
that the population of the United States
is about 300 million people that's just
data but in order to convert that into
useful information we need to be able to
process data into information into
understanding what that 300 million
really means in other words how fast is
the population growing what's the age
breakdown of the population in other
words it's the processing and the
analysis of the data for a specific
purpose for management to be able to
take decisions to make plans with so
it's adding meaningfulness to the data
that's when the data becomes information
and keep in mind the importance of and
the characteristics of good management
information here are some features of
good information easy to understand
because the mnemonic accurate is used
the first one being of course accurate
the information has to be should bear
some resemblance to the truth otherwise
self management will be misled by
incorrect fact it should be as complete
as possible this is an ideal situation
you never have a hundred percent to the
information necessary to make a decision
cost beneficial the idea here is a deep
benefit to us of collecting the
nation should be at least equal to or
greater than the cost of obtaining that
information it should be greater because
otherwise it's not worth collecting such
information we hope that the information
will be understandable we've already
mentioned earlier that the information
should be relevant to the purposes of
management it should be adaptable it
should be able to apply it and
manipulate it and work with it so it's
apply applicable to two relevant
situations we must be able to obtain it
in time old information old info is no
info if you don't know about something
in time
you can't act on it in time and
therefore the information becomes
useless and it should be easy to use
again we want to emphasize the
distinction between financial and
non-financial information and here we
give some examples of non-financial
information we discussed that earlier
and of course we should keep in mind as
well the limitations of management
accounting information in other words
management has only so much time
available so they cannot measure
everything that's going on in the
business they have to select the right
things in the business that are relevant
to the efficient performance of the
business in other words very important
that management prioritize and give due
attention to the most important
priorities and important bits of
information they need
to have in order to take decisions
information technology of course is
extremely important to this end because
it allows for a greater amount of data
to be processed into information of
course the challenge here is to make
sure that the input is qualitatively
good because if the input is garbage
then of course the output is going to be
garbage as well and there's also a
question of relevance sometimes
management spend an enormous amount of
time using their IT systems to process
information about things that are not
relevant to the business so it's very
important to get the design and the
content of the of the IT systems right
and we've also mentioned earlier the
freestyle format of managerial of
management accounting the format
instructor has to be developed according
to the internal requirements of the
users that means of the employees
themselves and management