Internet and social media have led to an information boom in our lives and the kind of information we get is relevant in all walks of life. Moreover, there is always a preference to consume information that is clear, concise snippets and not some lengthy text. The same goes well for the financial statements that have changed the way data-consumption trends.
Show and tell
Humans are visual learners. Product marketing is the genesis of what is known as “infographics”. This form of marketing combines images with written text. These data visualizations can be an indicator and can also evoke emotion. This means that they can generate content that is engaging and can meet out boredom.
Annual reports are traditionally lengthy and text heavy. Therefore, there is more usage of visual aids by businesses to present critical financial information to investors and other stakeholders. A major advantage of having infographics in places is the fact that they help stakeholders digest complex information and retain key points.
In financial reporting
Some of the examples that are an apt representation of financial reporting include:
Time-series line graphs– These visual aids are very useful to show financial metrics, such as revenue and cost of sales, over time. They are particularly handy in letting the stakeholders identify trends, like seasonality and rates of growth (or decline). It can also be used to study the historical data of performance and take measures for plans.
Bar graphs– One of the older methods, the bar graph has data grouped into rectangular bars in lengths proportionate to the values they represent so data can be compared and contrasted. This type of graphical representation may also be used by the companies to show revenue by product line or geographic region to determine what (or who) is selling the most.
Pie charts- The model is formed using circular representation and the data is divided into slices like a pizza. This infographic is mostly used to show the composition of a company’s operating expenses to use in budgeting or cost-cutting projects.
To have an effective visualization, it is important to avoid “chart junk” i.e. all the unnecessary elements of detailing like excessive use of colour, icons, or text — that detract from the value of the data presented. Simplicity and conciseness are key to an impressive infographic that presents one or more ideas. The information also should be timely and relevant. The overuse of infographics can be too much for the readers though.
Beyond annual reports
In addition to using infographics in financial statements, there can be other reasons due to which the management may decide to create data visualizations. The probable reasons are:
- Obtaining bank loans or equity financing from private investors,
- To identify the value drivers and risk factors in mergers and acquisitions,
- The management may also use infographics to present the data to the management team for strategic decision-making, and
- Creating demonstrative exhibits for mediation or court.
Non-profits can use infographics that can potentially be effective in stitching an emotional connection with donors. Therefore, this may encourage additional contributions to the non-profit’s cause.
Let’s get visual
Infographics are not a complete substitute for financial statements. All they can do though is supplement the financials by highlighting key issues and accomplishments. There are of course certain entities that like non-profits and private businesses which generally have more flexibility in how they present their financial data than public ones do.
This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.