Explain how financial statements are useful to the various parties who are interested in the affairs of an undertaking?
The various parties interested in financial statements of a company can be broadly classified as:
1. Internal and
2. External
Internal Users
1. Owners:
The interest of an owner is towards knowing whether profit is earned or loss is incurred by the business. They are more interested in knowing about the viability of the capital that is invested in the business.
2. Management:
Financial statements help management in devising new policies for growth of business and also provides management with the insights required for implementing various cost cutting measures.
3. Employees:
They are interested in timely payments, bonuses and appraisals at the decided time. Financial statements help employees to learn about financial position of the organisation so that appropriate salary can be demanded.
External Users:
1. Banks and Financial Institutions:
Such institutions provide credit so it is necessary to understand the liquidity, solvency and creditworthiness of the organisation for loan requirements in future.
2. Creditors:
Businesses own money to creditors and hence it is important for them to have information about credit worthiness of the business.
3. Investors or potential investors:
These are people who will provide funds by means of investment in business, hence the viability and solvency of an organisation will help in making investment decisions.
4. Tax Authorities:
Information is required by them for determining the types of taxes that can be charged on the organisation.
5. Government:
Government needs information to determine National Income, GDP and industrial growth. Financial statements help government in formulating various policies and address issues like poverty and unemployment.
6. Consumers: An organisation publishing financial statement makes consumers aware of the profits they are earning and the relative expenses that goes into providing services at affordable prices, thus helping in gaining a good name among consumers.
7. Public:
Public knowledge of financial statements is about how the business is spending money for social welfare.
8. Researchers:
Researchers use the financial statements to predict market trends and undertake research projects.
The various parties interested in financial statements of a company can be broadly classified as:
1. Internal and
2. External
Internal Users
1. Owners:
The interest of an owner is towards knowing whether profit is earned or loss is incurred by the business. They are more interested in knowing about the viability of the capital that is invested in the business.
2. Management:
Financial statements help management in devising new policies for growth of business and also provides management with the insights required for implementing various cost cutting measures.
3. Employees:
They are interested in timely payments, bonuses and appraisals at the decided time. Financial statements help employees to learn about financial position of the organisation so that appropriate salary can be demanded.
External Users:
1. Banks and Financial Institutions:
Such institutions provide credit so it is necessary to understand the liquidity, solvency and creditworthiness of the organisation for loan requirements in future.
2. Creditors:
Businesses own money to creditors and hence it is important for them to have information about credit worthiness of the business.
3. Investors or potential investors:
These are people who will provide funds by means of investment in business, hence the viability and solvency of an organisation will help in making investment decisions.
4. Tax Authorities:
Information is required by them for determining the types of taxes that can be charged on the organisation.
5. Government:
Government needs information to determine National Income, GDP and industrial growth. Financial statements help government in formulating various policies and address issues like poverty and unemployment.
6. Consumers: An organisation publishing financial statement makes consumers aware of the profits they are earning and the relative expenses that goes into providing services at affordable prices, thus helping in gaining a good name among consumers.
7. Public:
Public knowledge of financial statements is about how the business is spending money for social welfare.
8. Researchers:
Researchers use the financial statements to predict market trends and undertake research projects.
