Explain application of MIS use in Financial Management in brief with example. (Dec-2012)

Financial Management (FM) is perform a strategic task related to finance and control all the financial transactions.

Objective : Meet financial needs of the business from time to time, by way of providing working capital and long term capital to run the business with the goal of containing the cost of capital at the minimum.

Techniques for achieve Objectives :

1. Break even analysis
2. Capital budgeting and ROI analysis
3. Cost Analysis
4. Cash Flow Projections
5. Ratio analysis
6. Financial modelling
7. Management Accounting
8. Expense analysis,  auditing and control

Input Transaction Documents :

• Payments :

Suppliers

Authorities

Share holders

• Receipt :

 Customers

 Share holders

Financial Institutes

• Data from Stock Exchange :

Share prices

Financial results

Applications : Major application is the Financial Accounting System, which accounts for the financial transactions of the company and produces financial results for the company.

1. Accounting Application :

1.          Sales
2.       Purchase
3.          Salary / Wages
4.          Inventory
5.        Expenses

2. Query Application :

1. Main account
2. Subsidiary account
3. Location (Factory, Branch etc.)

3. Decision Analysis Applications :

1. Cash flow analysis
2. Sources and uses of funds
3. Debtors analysis and aging
4. Creditors analysis and aging
5. Budget analysis

4. Control Application :

1.  Account receivables, outstanding beyond the acceptable norms
2.  Advances to creditors, and non realisation of obligations
3.  Valuation of non-moving inventory for disposal
4. Valuation of non-moving accounts and legal actions

Reports : A major portion of a financial management system is devoted to the statutory compliance and operations update.

1. Statutory Compliance :

• Tax returns
•  Registers: Sale Tax, Excise, Tax deducted
• Declaration of certain results to the financial institutions

2. Information Update :

• Monthly trial balance, balance sheet and profit & Loss Account
• Stock valuation
•  Accounts receivables and payable

3. Operational Update :

•         Transactions executed and accounted in the system
•          Report on finished goods, dispatches and invoicing
•          Reports on material receipts and payments to the suppliers

4. Decision Analysis :

• Break even analysis for cost and price decision
•  ROI analysis for choice of investment
• Trend analysis on price of selected commodities
• Cash flow, sources and uses of funds

5. Action Update :

• Payments to creditors, where penalties are involved
• Poor usage of fixed assets and disposal
• Overdue receivables – Legal Action