Question

State the importance of financial statements to
(i) shareholders
(ii) creditors
(iii) government
(iv) investors

Answer 1

Following are the importance of financial statements for:

1. Shareholders:
For a shareholder, a financial statement is helpful in determining viability and profit making capacity of a business. It provides businesses with sufficient data to analyse the financial health and performance of the business.

2. Creditors:
A financial statement is essential for a creditor to understand the credit worthiness of the business along with liquidity. It helps them to decide whether further investments can be done for this business.

3. Government:
A financial statement helps government in determining GDP, national income, industrial growth etc. which leads to formulation of various policies and addressing problems like poverty and unemployment etc.

4. Investors:
For Investors who have invested or those planning to invest, a financial statement is necessary. Financial statement helps determining the prospects and viability of new investments.