What is Financial Information?

Financial information is data about the monetary transactions of a person or business. This information is use to derive estimates of credit risk by creditors and lenders. Examples of financial information are credit card numbers, credit ratings by third party credit analysis firms, financial statements, and payment histories.

Anyone using financial information has a duty to keep the information secure, since it could be used by third parties to engage in identity theft.

How is Financial Information Used?

Financial information is usually summarized into an organization’s financial statements, which are then perused by financial statement users to discern the financial position, financial results, and cash flows of the reporting entity. In this context, financial information can be used in the following ways:

To alter operations. The managers of a business use financial information to decide whether changes should be made to operations, perhaps to invest in certain product lines, shut down others, scale back hiring, and so forth.
To grant credit. Financial information is used by lenders and creditors to decide whether a business is in a position to pay back a loan or pay an invoice. Updates to financial information may be used to restrict existing credit or an existing loan.
To invest. Investors use financial information to decide whether to invest funds in a business, or to sell off their interests in an existing business.
To assess risk. Financial statements provide insight into a company's stability, profitability, and liquidity, allowing investors to gauge the risks associated with investing in the company.
To pay taxes. Financial information is used to complete tax returns and decide how much money a business must pay to the relevant taxing authorities.
To conduct competitive benchmarking. Companies use financial data to compare their performance to that of competitors. Metrics like profit margins, revenue growth, and return on assets help businesses understand their market position.