Who Needs the Financial Statements?

Who Needs the Financial Statements?

Financial statements (Also see Financial Statements That Financial Accounting Generates) are the documents that the company will prepare to show its financial affairs in a certain period. Business owners (Also see Tips to Become Intelligent Business Owners) may choose to generate these statements every quarter, every six months or every year, and they need to decide whether they want to hire in-house bookkeeping service in Johor Bahru to get them done as this needs a certain level of expertise in accounting. The financial statements include a balance sheet, income statement, statement of cash flow, and the statement of changes in equity.

So, who will use the financial statements and for what purpose they use those statements? The company’s management will probably be the first one who needs financial statements. Even though they are those who prepare these statements (with the help of the accountants of course), they need to study these statements with the board of directors when they want to analyse the growth and development of the company. By using the financial statements, the management will be able to know the assets and liabilities, fund requirements, cash flows (Also see How to Manage Your Business Cash Flow?), liquidity, profitability, cash balances, and other business operations of the company. Hence, these statements are very useful when the management wants to make decisions pertaining to the company.

Financial statements (Also see What Investors Want To See In Your Financial Statements?) are crucial to the investors of the company too. As the owners of that business, investors would like to know the performance and financial position of the company that they have invested. Then, based on the latest information stated in the financial statements, they can decide whether they want to continue or stop investing in a particular company.

Apart from that, the clients are one of the users of the financial statements too. For clients that wish to collaborate with a company for the long term, they would prefer working together with a sustainable and financially stable company. Also, clients tend to work with financially robust companies, as this means that they will be able to provide their customers with credit sales, which is a great advantage. Such companies can sell goods and services to their clients at lower prices compared to the market price too.

Similar to the clients, suppliers also prefer dealing with financially robust companies. Thus, they will use financial statements and see whether they should provide credit to those companies. On the other hand, lenders like financial institutions, banks and creditors will also look at the financial statements of a company. This is because they need to know whether the company is capable of paying its debts before they provide a loan to it.

In some occasions, the government agencies or certain departments, for example, the income tax and sales tax authorities, would use the financial statement of a company too. This is for them to determine whether the company has paid its taxes based on the appropriate rates. Furthermore, the financial statements would be helpful if they want to predict the amount of tax that the company will pay in the future based on its performance and the trends in that industry.

In conclusion, various parties would use financial statements as these statements provide vital information about that company to the readers. By studying the financial statements, one will be able to tell the performance of the company when compared to the benchmark and peers. Hence, business owners should make sure that they have prepared their financial statements accurately so that the statements can reflect the real financial position of their companies.

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