A financial information system is an organized approach to collecting and interpreting information, which is usually computerized. A well-run financial information system is essential to a business, since managers need the resulting information to make decisions about how to run the organization. This system can be used in many ways, including the following:
- Ensure that there are sufficient funds on hand to pay for obligations as they come due for payment
- Put excess funds to use in appropriate and reasonably liquid investments
- Determine which customers, products, product lines and subsidiaries are the most and least profitable
- Locate the bottleneck areas within the business
- Determine the maximum amount of funds that can safely be distributed to investors in the form of dividends
- Determine the maximum debt load that the organization can sustain
There are a number of ways in which to extract information from a financial information system, including structured reports that are run on a regular basis, ratio analyses, cash forecasts, and what-if analyses.