Be Enlightened on the Various Uses of Financial Statements

Posted on Mar 8 2016 - 8:47am by Expert-Zine

Understanding Financial StatementsThe law requires every company to keep a clear set of financial statements. The primary objective of the statements is to provide valuable information about the financial position, changes and also the performance of a company. The information is essential to various users in making economic decisions.

The following people use financial statements in their day-to-day jobs.

Managers

They assess the financial position and performance of the organisation using the prepared statements. They are also essential while implementing important decisions such as the expansion of business.

Prospective investors

They need the financial statements to assess whether it’s viable to invest in a company. It is possible to predict any future dividends based on the provided profits in the statements. Risks associated with investing in a certain organisation can be gauged using the provided documents.

Financial institutions

They include banks and other lending institutions. They will use your financial statements to make a decision whether you qualify for credit or a loan. These can help determine the probability of defaulting on the loan based on your records.

Shareholders

They use these statements to assess the risks and returns of their investments into the company carefully. Also, any investment decision is based on the given statements.

Competitors

A company compares its performance with that of rival companies based on financial statements. Consequently, the company can learn and also develop various strategies to improve overall competitiveness.

The general public

The public may be interested to know the effects a company has on the environment, economy and also the local community.

Employees

They can assess the overall profitability of a company and the consequence on their future remuneration and benefits such as bonuses.

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The government

The government can determine the accuracy of the tax declared in the tax returns. The government also keeps a clear track of economic progress by analysing various financial statements of businesses from various sectors of the economy.

Customers

Occurs where there is long-term involvement between a company and its customers. They may want to evaluate the company’s ability to continue in existence. The customers, using the statements can measure the stability of its operations.

It’s essential for every company to update their financial statements so as to assess their position and their stability to grow.