INTELIGENT FINANCIAL
COMPUTER SYSTEMS - NEW POSSIBILITIES FOR ACCOUNTING AND MANAGEMENT
|
INTRODUCTION
The purpose of this text
is:
-
to
inform on significant new possibilities in finance and managerial
practice, by means of INTELIGENT COMPUTER SYSTEMS
-
to
present new development directions for accounting and control,
made possible by intelligent computer systems.
In the text that follows, we
present:
-
general description of intelligent
financial computer system
-
description of the work of intelligent
financial system
-
example of use of intelligent
financial system
-
financial models that could
be used
-
modes of using the system
-
general characteristics of the
system, training and costs considerations
-
development directions for accounting
and control, based on intelligent computer systems
GENERAL
DESCRIPTION OF INTELIGENT FINANCIAL COMPUTER SYSTEM
Intelligent financial computer
system is the one that:
-
can
accept expert financial knowledge, in the form of various financial
models
-
transforms
general ledger data, according to those financial models
-
delivers
answers to the "why ...", "what is required to ..." and "what if ..."
questions.
For the time being, the single
such a system on the market is TOMAS - TOtal MAnagement System, developed
by the SUPER-KING Inc., Zagreb, Croatia.
TOMAS is a generalized information
system for the management of various types of organizations. Here, possibilities
of TOMAS as intelligent system in accounting and management control are
described.
In short, these possibilities
are the following:
-
cut-through
the financial plans and general ledger, according to the financial
model chosen by the user
-
answers
to the following questions :
-
why
the
given element of the model has been changed, in the period to be analyzed
-
what
is required to achieve given value
-
what
is going to happen with all of the model elements, if certain
accounts are to be increased or decreased, for a given amount or percentage
-
graphic
representation of the value for any of the financial indicators.
Effects that are achieved by
use of intelligent financial system are:
-
Financial
managers and controllers in an organization:
-
get much better control of what
is being done in accounting dept., for in few seconds consistency of booking
data could be checked
-
get much more accurate and better
insight in the business results of the organization, for it is easy to
get various key business indicators of manager and controller's choice.
-
Managers
and owners get full and permanent insight in the business results,
expressed in business categories, rather then in accounting categories,
hence they do not have to have knowledge of accounting.
-
External
and internal financial control can do their job much easier
and better.
DESCRIPTION
OF THE INTELIGENT FINANCIAL SYSTEM
Components of TOMAS, pertinent
for use as intelligent system are:
-
Database
in which, normal general ledger data and financial plans are entered, primarily
for standard accounting.
-
Knowledgebase
in which various financial models are entered. Financial model is a set
of financial relations (statements), based on accounts. Such a model is,
e.g. balance sheet, profit and loss statement, set of various financial
indicators etc. TOMAS makes possible use of any model that user could take
from literature or make it specifically.
-
Informationbase,
where any report could be stored and:
-
could be modified, i.e. could
be added comments, graphically enhanced, etc
-
could be kept for later use
-
permanently and promptly is
available to authorized persons
-
has built-in various search
and editing functions, so it is easier and more efficient to analyze report
on the screen, rather than on the paper.
FUNCTIONING OF TOMAS works
in the following way:
-
User
enters in TOMAS:
-
the report type (analysis or
graphical representation)
-
period to be treated
-
financial model to be used
-
the choice of whether the report
is to be done by organizational units, work orders etc. or for the organization
as a whole.
-
Then follows intelligent
data refinement by TOMAS:
-
database search in accordance
with financial models, i.e. retrieves booked items, according to accounts
in a financial model ...
-
... applies computing operations
according to the model ...
-
... and, finally, produces a
report that could be:
-
standard report, i.e. the list
of computed results
-
analysis:
-
why changes happened in some
of the elements of the model
-
what is required to achieve
the given value
-
what would be the consequences
for each model element, if values for user accounts defined by user would
be increased or decreased for a given amount or percentage
-
graphical or tabelar presentation
of the value flow in a time period, for any element of the model.
-
Report
handling types that TOMAS offers are:
-
screen display
-
report modifications - delete
parts, add comments etc
-
print the report
-
store the report in informationbase
for later use.
EXAMPLE
OF USE OF THE INTELIGENT FINANCIAL COMPUTER SYSTEM
In order to show an example
of use of intelligent system, the following example is presented:
Database
contains:
-
general ledger data
-
financial plan data, i.e. planned
monthly amounts for each account considered to be relevant for business
planning.
Knowledgebase:
Model of profit and loss
statement, that is in TOMAS entered in the following way:
Model
|
R.n.
|
Description
|
Relation
|
RM
|
1
|
PROFIT
AND LOSS STATEMENT |
0= |
RM
|
2
|
Net
sales |
K75#P+K76#P= |
RM
|
3
|
Cash
paid to suppliers |
K70#D+K71#D= |
RM
|
4
|
Income
of other activities |
K74#P+K77#P= |
RM
|
5
|
Costs
of other activities |
K72#D= |
RM
|
6
|
Extra
income |
K78#P= |
RM
|
7
|
Extra
costs |
K73#D= |
RM
|
8
|
Profit
before taxes |
K75#P+K76#P+K78#P-K70#D-K71D= |
RM
|
9
|
Taxes |
0,35*(R2-R3+R4-R5+R6-R7)= |
RM
|
10
|
Net
profit |
R8-R9= |
One
of the reports that intelligent system delivers is the following:
CROATIA
- INVEST D.D. TOMAS, 11.07.1998.
FINANCIAL RESULTS ANALYSIS
FOR 1. – 6.98.
*****************************************
MODEL: Profit and loss
statement |
Description
|
In current month
|
From the beginning
of the year
|
|
Plan Actual Index
|
Plan
Actual Index
|
-
Net sales
|
2,250.000
1,975.688 0,88 |
16,400.000
17,020.887 1,04 |
Cash paid to suppliers
|
1,750.000
1,405.883 1.24 |
11,644.000
12,688.954 1,09 |
Income of other activities
|
300.000 300.000 1,00 |
1,800.000
1,800.000 1,00 |
Costs of other activities
|
30.000 26.000 1,15 |
180.000 211.552 1,18 |
Extra income
|
100.000 72.876 1,37 |
600.000 311.237 0,52 |
Extra costs
|
10.000 |
60.000 38.892 0,65 |
PROFIT BEFORE TAXES
|
860.000 915.993 1,06 |
6,916.000
6,192.398 0,89 |
Taxes
|
301.000 320.598 1,06 |
2,420.600
2,167.339 0,89 |
NET PROFIT
|
559.000 595.395 1,06 |
4,496.600
4,025.059 0,89 |
Hence, TOMAS produced this
report, retrieving general ledger data and financial plan data, and destined
those data according to the chosen financial model.
FINANCIAL
MODELS THAT COULD BE USED
TOMAS could use any financial
model where addition, subtraction, multiplication, division and recursion
(use of previously defined relations) are used.
In user documentation of
TOMAS, as for a start, the following financial model is suggested:
KNOWLEDGEBASE FOR MANAGEMENT
REPORTING
Results
for a period:
-
total income
-
total costs
-
profit before taxes
-
income taxes
-
netto profit
-
receivables
-
payables
-
total payables
-
inventories
Statement
of assets:
-
current assets minus inventories
-
total assets
-
capitalization = total assets
- short term debts
-
equity = total assets - total
debts
Indicators
for quality of business
Liquidity
and coverage:
-
quick ratio (acid test) = Liquid
assets/short term debts
-
debt/total assets ratio = total
debts/total assets
-
debt to equity ratio = total
debts/equity
-
current ratio = current assets/current
debts
Costs
vs. sales:
-
total costs as % of sales
-
costs of sales as % of sales
Activity
indicators:
-
net sales turnaround coefficient
= (net sales/total assets) x 360/ days since beginning of the year
-
receivables turnaround coefficient
= sales / receivables) x 360/ days since beginning of the year
-
total assets turnaround coefficient
= total income/total assets
-
receivables average payment
period = 360 x receivables/ sales x days since beginning of the year
Profitability
indicators:
-
profit before taxes as a % of
sales
-
profit after taxes as a % of
sales
-
brut profit margin = profit
before taxes/ total income
-
netto profit margin = profit
after taxes/ total income
-
return on assets = profit after
taxes/total assets
-
profitability = profit before
taxes/total assets
Hence, standard model of financial
indicators for owners and management in TOMAS consists out of some 30 financial
indicators. As it is mentioned before, the user could easily enlarge and/or
reduce this model or develop their own model.
INTELIGENT
FINANCIAL SYSTEM USAGE MODALITIES
This kind of systems could
be used for the following purposes:
-
In
corporations and other organizations for:
-
Finance
and control support:
-
day to day control of completeness
and consistence in bookkeeping
-
business results control and
analysis.
-
Management
and owners support:
-
permanent control of operations
-
business results analysis
-
decision support - answer to
questions:
-
why some indicator has been
changed in a period
-
what is necessary to achieve
a given value
-
what is going to be the consequence
of increasing or decreasing some costs, investments etc.
All this without bookkeeping
jargon, i.e. using normal business categories, familiar to nonfinancial
managers.
-
In
financial (CPA and auditing) firms:
-
much easier and more efficient
work, considering that voluminous and tedious data treatment is eliminated
-
more standardized and higher
quality of work, due to the automatic use of standard models
-
remote work, i.e. without coming
on the user premises and possibility for having "consilium" in-house, whenever
necessary.
-
In
governmental financial institutions:
-
financial control and analysis
of state institutions
-
control and analysis of business
results of organization in the city, county, state
GENERAL
CHARACTERISTICS OF TOMAS, AS INTELIGENT FINANCIAL SYSTEM
-
Ease
of use: financial models could
be easily entered in a knowledgebase of TOMAS in a few minutes. Entering
models is simple and training for this is only 2 - 3 hours. Training for
use of informationbase is even shorter.
-
Low
costs: if one uses complete TOMAS,
investment in the computer equipment is cca 2.000 DM/workstation. Use of
TOMAS software costs cca 200 DM/month and workstation.
-
Exceptional
speed: due to special developments
method of TOMAS, all data are resident in central memory, rather than on
discs and makes TOMAS cca 20 times faster than other systems.
-
Unique
solution: there is no other system
on the market with these capabilities, even in the systems that cost millions
of dollars.
DEVELOPMENT
DIRECTONS BY USE OF INTELIGENT FINANCIAL SYSTEMS
There are various possibilities
for the development of new methods in finance and management, as well.
Some of them are presented below:
-
DEVELOPMENT OF FINANCIAL
DSS MODELS (Decision Support Systems) that could be based directly
on general ledger data.
DSS models have been on
the market for some years, for various types of activities, including the
financial ones. However, the existing DSS solutions are such that the user
has to enter all input data, in the form suitable for that DSS.
TOMAS is using standard
general ledger module data, and no other input has to be done.
One type of financial DSS
could have the following structure: to produce a report that would give
clear picture of financial performance of the organization. This is an
example of such a report.
KEY FINANCIAL INDICATORS
FOR XY Inc.
Indicator
|
very good
|
good
|
poor
|
very poor
|
inventories
turnov. coeff. |
X
|
|
|
|
receivables
turnov. coeff. |
|
X
|
|
|
debt/current
assets ratio |
|
|
X
|
|
profitability |
X
|
|
|
|
|
|
|
|
|
To achieve this, in TOMAS
should be entered values that are considered to be very good, good etc,
for the elements of the financial model. These data should be maintained
for various types of organizations.
-
DEVELOPMENT OF FINANCIAL
EXPERT SYSTEMS
Example of the possible
structure of such an expert system follows:
If
current
assets / short term debts > 1,5
and
total
income / total assets > 10
and
profit
before taxes / total income > 0,2
then
organization is very successful
If
liquid
assets / short term debts < 0,3
and
total
debt / equity > 1,3
then
organization is going to collapse.
.
.
This kind of system could
produce, in seconds or minutes, financial expert diagnosis, using standard
general ledger data.
Computer support for such
an expert system could be easily added to TOMAS, as the main components
required are available.
However, it should be stressed,
the financial experts should develop adequate financial models, i.e. the
list of indicators and their values as a basis for diagnostics of financial
performance.
This should be done in specialized
financial institutions or in large companies.
Development and use of such
systems would produce a whole new quality of work in finance and financial
control.
CONCLUSION
In this paper, use of intelligent
financial computer system is presented.
This type of systems enables
achievement of a new quality of work in finance and financial control and
management of organizations, as well.
TOMAS is a unique solution
with such capability, there is no other on the market - even the solutions
that cost tens times more, do not have this capability.