Importance of information technology in financial reporting

From trading financial instruments to keeping records of personal budgets to reporting the earnings of a business, computer technology is used by financial companies daily. Information technology allows the rapid calculation of financial statistics, as well as electronic transfers of money. Trading Financial trading is enhanced with information technology.

Importance of information technology in financial reporting

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The process of putting an analysis down in writing can be instrumental in making sure as many stones as possible have been turned over when researching a company. And that's always been my philosophy.

Company Overview A report should start with a description of the company in order to help investors understand the business, its industry, its motivation and any edge it might have over its competitors.

These factors can prove invaluable in helping to explain why a company might be a profitable investment or not. More valuable detail can be obtained from industry trade journals, reports from key rivals and other analyst reports.

To also capture key fundamentals to describe a company, look to Michael Porter. Specifically, the factors include the threat for new entrants to enter the market, the threat for substitute products or services, the extent to which suppliers are able to influence the company and the intensity of rivalry among existing competitors.

Investment Thesis The motivation for a bullish or bearish stance on a company goes into this section.

Importance of information technology in financial reporting

It can come at the top of a report and include parts of a company overview, but regardless of its position, it should cover the key investment positives and negatives. No detail is too small in this section; it can also cover efficiency ratios like the primary components in the cash conversion cycleturnover ratios and a detailed breakdown of return on equity components, such as the DuPont identitywhich will break ROE into three to five different metrics.

No analyst has a crystal ball, but the best ones are able to accurately extrapolate past trends into the future, or decide which factors are the most important in defining success for a company going forward.

Valuation The most important part of any financial analysis is to come to an independent value for the stock and compare this to the market price. There are three primary valuation techniques: This is generally referred to as a discounted cash flow analysis. Another comparison analysis is to look at what other rivals have been bought out for or the price paid for an acquisition.

The third and last technique is to look at book value and try to estimate what a company might be worth if broken up or liquidated. A book value analysis is especially insightful for financial sector stocks, for instance. The loss of patent protection for a blockbuster drug for a pharmaceutical company is a great example of a factor that can weigh heavily on the valuation for its underlying stock.

Importance of Information Technology in Finance | Bizfluent

Other considerations include the sector in which the firm operates. For example, the technology industry is marked by short product life cycleswhich can make it hard for a firm to keep its edge following a successful product release. Other Considerations The above sections could prove sufficient, but depending on the stones uncovered during a financial analysis, other new sections might be warranted.

Sections covering corporate governancethe political environment or nearer-term news flow, might be worthy of a fuller analysis. Basically, anything important that can impact the future value of a stock should exist somewhere within the report. The Bottom Line The performance of the underlying company is most certainly to drive the performance of its stock or bonds in the future.

Importance of information technology in financial reporting

Other derivative securities, such as futures and options, will also depend on an underlying investment, be it a commodity or a company. Figuring out the key drivers to the performance of a stock and putting it down in writing can be an invaluable endeavor for any investor, regardless of if a formal research report is needed.

Trading Center Want to learn how to invest? Get a free 10 week email series that will teach you how to start investing. Delivered twice a week, straight to your inbox.Financial analysis reports contain a wealth of valuable information about a company.

Here's an overview of the major sections to consider when writing and reading one. But financial data that are not presented in the context of other important information will paint a very incomplete picture.

An education information system with school finance data linked to student outcome indicators is essential to an understanding of how resources are .

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