Class: A4 – LT6B
Essay: Importance of financial statements to managers, investors and creditors
Financial statements are important reports. They show how a business is doing and are very useful internally for a company's stockholders and to its board of directors, its managers and some employees, including labor unions. Externally, they are important to prospective investors, to government agencies responsible for taxing and regulating, to lenders such as banks and credit rating agencies, and to investment analysts and stockbrokers. They are especially useful to managers, investors and creditors.
Firstly, managers of businesses, more than any of the other users, benefit most from the use of …show more content…
Financial information is relevant if it is appropriate to its expected use. It is relevant if used to assist with decisions, including ability to provide feedback and to predict. It its important that the financial statements do not become cluttered with trivial disclosures. Otherwise the overall usefulness of the financial statements will decline.
Thirdly, a business' creditors uses its financial statements in various ways to review and assess the business. By ensuring that its financial statements are accurate, a business can provide useful information to help expedite credit decisions. Each financial statement provides a creditor with a different set of data with which to make a decision about extending credit or to evaluate the credit-worthiness of an existing customer. The balance sheet is a financial statement that provides information about the assets, liabilities and equity of a business. Creditors can use the balance sheet to glean information about the state of a company's cash position, receivables management, inventory management and its debt levels. The balance sheet is a snapshot of the business at a certain place in time. The income statement, also known as a profit and loss statement, provides creditors with vital profitability information about a company. The income statement will provide the