Financial information system definition

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What is a Financial Information System?

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

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Financial Information System Reporting

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. A report writer module is used to construct the more commonly-used reports, while less frequently used data is downloaded through a query system.

Examples of Financial Information Systems

Here are several examples of financial information systems that one company might use:

  • Accounting system. The company maintains an accounting system that it uses to record and pay for supplier invoices, issue invoices to customers, log the cash received from them, and process payroll for its employees.

  • Budgeting and forecasting system. The company uses a forecasting system to estimate its short-term revenue expectations, and also develops a more detailed budget that spans its next fiscal year. Both systems are used to plan operations.

  • Cash forecasting and investment system. The company uses a cash forecasting system to estimate its future cash flows, which it then uses to decide which investment vehicles to purchase, based on their maturities.