Financial statements provide vital information on the performance of organizations and their activities. They tell you about a company’s assets, liabilities, and financial performance over a period of time. By following the financial statements, you can get an idea about how a company is performing and whether it is on the way to achieving its goal. In short, it gives you an insight into the financial health of an organization. This article will enumerate the users of financial statements.
The information in financial statements is useful to those who are directly or indirectly associated with the business. Financial statements are intended to provide relevant information and help users of financial data decide what action to take or what risks they face. They provide a clear picture of the company’s business activities, prospects, and challenges.
The users of financial statements can include; Owners of a company, Company management, Investors/shareholders, Customers, Competitors, Government agencies, Employees, Investment analysts, Lenders, Suppliers/vendors, and General public.
The owners provide the organization with funds or capital. Therefore, It is their curiosity to know whether the capital is being utilized appropriately or not. Businessmen always look at the returns on their investments. Financial statements help them to keep an eye on the finances of their company. They can get valuable information by comparing the accounts of different years.
The company’s management needs financial statements to make decisions about the business. Financial statements provide a basis for evaluating the business activity’s merits and demerits. They need the financial statements to see the profits/losses of the business and also the company’s cash flows and liquidity position so that they can take major decisions involving financial and operational decisions for the development of their company. The financial statements are also helpful to compare their performance with similar businesses to know where they stand as compared to their competitors.
Since investors are the owners of the company therefore they analyze financial statements to know the performance of their investment. On the basis of financial statements, they make decisions such as whether to continue their investment or hold it. They also use them to compare different companies and make their investment decisions.
Government authorities require every company to pay taxes at a certain percentage. The amount of taxes payable is calculated after the financial statements have been prepared. Taxation and other regulatory authorities, particularly those from the income tax department, are interested in the financial position of businesses for tax purposes.
It is the customer who buys the finished products from the company. It is necessary for customers to view the financial statements of the company from which they are purchasing goods or services. Big clients prefer to work with a financially stable company because they want a long-term partnership or contract. In addition, customers look for companies that offer them a credit period, which they also analyze from the financial statements.
Companies analyze the financial statement of their competitors in order to evaluate their financial condition as compared to other businesses. They also want to maintain a competitive edge over their competitors, so they want to know how the other company is doing financially. They also prepare their competitive strategies on the basis other financial reporting.
Employees are concerned about the company’s profitability and stability. They want to know if the company can pay salaries and provide benefits for its employees. A company’s financial position and performance may also be of interest to them for assessing possibilities for expansion, as well as opportunities for career development.
The financial statements of a company are closely monitored by investment analysts. This is because they have good industry knowledge and are updated about how the company is performing. They determine whether or not to suggest the stock of the Company to their clients based on their evaluation of the financial statements.
Lenders are those who lend money to financial institutions, such as banks and NBFCs. Before giving funds to a company, these lenders analyze its financial status to determine whether it can repay the funds and finance costs on time.
Suppliers prefer to work with financially stable companies. Therefore, they utilize financial statements and make credit decisions for the company. In addition, they also require financial statements when extending credit to a business.
The general public is interested in the financials of the company, including students, researchers, and others who sometimes need the data to conduct surveys.
Financial statements are used by investors, lenders, and managers for a variety of purposes. They’re really useful pieces of information when you want to make informed business decisions. Financial statements are used to help investors and company owners better understand a company’s financial position, performance, and trends.