Financial statements of an enterprise function in several significant operations. They mirror the authentic state of affairs of the enterprise. They assist in taking significant financial data. From investors and shareholders to creditors and the government, many people utilise them. Now, let us comprehend some uses of financial statements.
Uses of Financial Statements:
- Bridging the gap in Management: Financial statements fundamentally mirror an enterprise’s financial performance. They depict the profits and liabilities of the enterprise. They depict how successful an enterprise’s accord and decisions have been. Since shareholders have an approach to these statements, they can measure their enterprise’s accomplishment. This additionally assists in connecting or bridging the gap between mistakes in management and anticipated expectations of the owners.
- Availing credit from lenders: Every entity requires to lend capital for functioning. They have to depend on lenders like financial institutions and banks for this intention. Financial statements occupy a primary role in this purpose. Since they depict an enterprise’s debts, profits and investors, liabilities, can utilise them to make cognizant decisions.
- Use for Investors: Investors also broadly use an enterprise’s financial statements to evaluate its finances. That assists them to estimate how the enterprise’s financial competence would be in the longer term. Hence, the better an enterprise’s financial position is, the greater the investment it will receive.
Importance of Financial Management:
The significance of financial statements prevails in their service to persuade the diverse interests of distinct classes of parties such as creditors, public, management, etc.,
- Importance to Management: Increase in size and intricacies of aspects influencing the business functions requires scientific and strategic access in the management of contemporary trading concerns. The management team needs up to date, precise and methodical financial data for the intentions. Financial statements assist the management to comprehend the progress, prospects and position of the business counterpart in the industry.
- Importance to the Shareholders: Management is detached from control in the case of companies. Shareholders cannot take part in the day-to-day business pursuits. However, the outcome of these pursuits should be disclosed to shareholders during the annual general body meeting in the form of financial statements.
- Importance to National Economy: The rise and enhancement of the corporate sector, to a great amount, affect the economic breakthrough of a nation. Corrupt and fraudulent management break the trust of the public in joint stock companies, which is fundamental for economic growth and hinder the economic growth of the nation.
The above mentioned is the concept, that is elucidated in detail about the Uses and Importance of Financial Statements for the class 12 Commerce students. To know more, stay tuned to BYJU’S.