Understanding Business Performance
Business: Edexcel IGCSE, topic 3.4.3
Financial Data
Financial data is quantitative data that contains information about the financial performance and financial position of a firm. The financial statements published by firms and internal data about sales and profits are examples of financial data. The uses of financial data include:
Internal performance assessment
- Financial data can be used by internal management to assess the financial performance of a firm.
- Financial data is useful in spotting when the firm is not doing well and getting to the bottom of why it is not doing well.
- Business managers can use the financial data to spot trends and see if the firm is growing and becoming more or less profitable.
Investor assessment
- Financial data can be used by potential investors to see if it is worth investing in the business.
Competitor assessment
- Financial data can be used to compare a firm’s performance to the performance of their competitors.
- This gives a benchmark of how the firm should be performing compared to how they are actually performing.
Limitations of financial data
- Financial data is not as factual as it might seem. Sometimes it is based on people’s judgment or computer modelling.
- Financial data may only give a snapshot of financial performance at one point in time. This can be misleading as it may not take into account external factors or competitors’ behaviour.
- Looking only at one firm’s financial data does not always give a good idea of that firm’s performance.
Information from Graphs and Charts
Businesses often use information from graphs and charts. They make it easy for people to interpret the information quickly and help businesses to spot trends in the data that they may not otherwise have spotted from simply looking at numbers on a page.
Information from graphs and charts
- The UK Government’s National Income Accounts, and Family Expenditure Surveys are prepared through the National Statistics Office and are a good source of this kind of data.
- Data from specific industries such as that produced by the The Society of Motor Manufacturers and Traders (SMMT) can be useful for these kinds of information and graphics.
Test yourself on Understanding Business Performance
Usually, what type of data is financial data?