The Use & Limitations of Financial Information to Businesses

Use of financial data in decision making: To identify…

trends and make calculations for comparison over time and with other businesses

Use of financial data in decision making: To support an…

application for external finance such as a loan

Use of financial data in decision making: To attract…

potential investors

Use of financial data in decision making: To support…

spending decisions

Limitations to the use of Financial Data in Decision-making: different interpretations of data

Statistical information can be interpretated in different ways. Financial data can be window dressed (presenting financial data in the most positive way) to present a positive impression of performance

Use of financial data in decision making: data becomes out of date quickly

Financial data on sales, costs, and profit becomes outdated as soon as it's generated. Using financial data to make decisions relies on future performance to be at least broadly similar to past performance

Use of financial data in decision making: qualitative factors are ignored

Businesses measure their performance against a range of financial and non-financial criteria