What are the uses of management information system in finance ?

Ans.

Uses of Management Information System in Finance

Management information systems have capacity to maintain large data bases relating to store, accounting operations, budget, planning, decision-making etc. Management information systems are credited with increasing financial transparency, efficiency and accountability. MIS is widely adopted both by companies as well as governments.

Management information systems in finance are helpful in the following:

1. Ledger – The ledger is the main component of all financial information system. Financial transactions are simultaneously posted on the accounts. It updates accounts e.g. sales, inventory, accounts receivables etc. MIS reduces errors and provides an accurate and permanent records of historical transactions.

2. Cash Management – Cash management controls, monitors and forecasts cash for financing needs. MIS is beneficial in cash management as under:

(i) Tracking the flow of cash through accounts receivables and accounts payable accurately.

(ii) Monitoring cost of goods sold.

Cash flow management is a significant use of MIS in finance. MIS can help pin point areas that eat up cash flow e.g. inventory costs, high raw material costs etc.

3. Budget Planning – Financial budgets are tools used both for planning as well as control. Management information system in finance helps firms evaluate “what if” scenarios. By modifying the financial ratios, management foresees the effects of scenarios on the financial statements. MIS thus serves as a decision making tool, helping in choosing appropriate financial goals. Financial budget planning uses proforma or projected financial statements that serve as formal documents of management’s expectations regarding sales, expenses and other financial transactions of the firm.

4. Financial Reporting – The use of MIS systems in finance enables firm to generate multiple financial reports accurately and consistently. Generation of financial statements both for internal reports as well as for shareholders information takes less effort because of the automatic updating of the ledger. Compliance with regulations as well as auditing requirements becomes easier due to accurate records and providing a permanent historical map of transactions.

5. Financial Modeling – The financial model is a system. It incorporates mathematics, logic and data in the form of a large database. Financial model is used to manipulate the financial variables that affect earnings. Management information system in finance enables corporations to store a large amount of data. It helps management in developing accurate models of the external environment.