Business Financial Information Secrets

CHAPTER 3Internally Generated Financial Information

THE SHOTGUN VERSUS THE RIFLE

In Chapter 1, an overview was provided of the big three financial statements – the income statement, balance sheet, and statement of cash flows – which was followed in Chapter 2 by an explanation of the importance and role of external financial reporting. When examples of the financial statements were provided in Chapter 1 (and referenced in Chapter 2), they were done in the context of presenting them for use by a wide range of external parties (i.e., how financial statements are formatted and presented to parties who are independent or external to the business). In other words, let's use a shotgun approach to externally distribute standard financial information to a large and diverse potential audience.

Now with this topic out of the way and assuming you understand the importance and role of external financial reporting, let us turn our attention to generating internal financial information. Notice the broad reference to financial information, as for internal purposes it is not necessary to prepare complete financial statements for each specific management need or request. In fact, while complete financial statements should always be prepared, the distribution of these financial statements is generally reserved for the senior or executive management team (i.e., the parties who are responsible for all financial operating results of the company).

The norm for most companies is to prepare key financial ...