27 Mar How To Use Visual Aids In Financial Reporting
Thanks to the Internet and social media, we are bombarded daily with all kinds of information. As a result, most people prefer clear, concise snippets of data over lengthy text. Have your financial statements kept up with today’s data-consumption trends?
Show & tell
Humans are visual learners. In business, the use of so-called ‘infographics’ started with product marketing. Combining images with written text, these data visualizations can draw readers in and evoke emotion. They can breathe life into content that could otherwise be considered boring or dry.
Annual reports are traditionally lengthy and text heavy. So, businesses are now using visual aids to present critical financial information to investors and other stakeholders. In this context, infographics help stakeholders digest complex information and retain key points.
In financial reporting
Examples of data visualizations that might be appropriate in financial reporting include:
Time-series line graphs. These visual aids can be used to show financial metrics, such as revenue and cost of sales, over time. They can help stakeholders identify trends, like seasonality and rates of growth (or decline), that can be used to interrupt historical performance and project it into the future.
Bar graphs. Here, data is grouped into rectangular bars in lengths proportionate to the values they represent so data can be compared and contrasted. A company might use this type of infographic to show revenue by product line or geographic region to determine what (or who) is selling the most.
Pie charts. These circular models show parts of a whole, dividing data into slices like a pizza. They might be used in financial reporting to show the composition of a company’s operating expenses to use in budgeting or cost-cutting projects.
Effective visualizations avoid ‘chart junk.’ That is, unnecessary elements — such as excessive use of color, icons, or text — that detract from the value of the data presentation. Ideally, each infographic should present one or two ideas, simply and concisely. The information also should be timely and relevant. Too many infographics can become just as overwhelming to a reader as too much text.
Beyond annual reports
In addition to using infographics in financial statements, management may decide to create data visualizations for other financial purposes, such as:
- Obtaining bank loans or equity financing from private investors
- Identifying value-drivers and risk factors in mergers and acquisitions
- Presenting data to the management team for strategic decision-making
- Creating demonstrative exhibits for mediation or court
Non-profits also can use infographics to create an emotional connection with donors. If effective, this outreach may encourage additional contributions for the non-profit’s cause.
Infographics cannot completely replace text in financial statements, but they can be used to supplement the financials by highlighting key issues and accomplishments. Certain entities, such as non-profits and private businesses, generally have more flexibility in how they present their financial data than public entities. Contact us to help decide on the optimal visual aids to drive home key points in an effective, organized manner.