Users of financial statements29th August 2022 1 By indiafreenotes
When a customer is considering which supplier to select for a major contract, it wants to review their financial statements first, in order to judge the financial ability of a supplier to remain in business long enough to provide the goods or services mandated in the contract.
The management team needs to understand the profitability, liquidity, and cash flows of the organization every month, so that it can make operational and financing decisions about the business.
Entities competing against a business will attempt to gain access to its financial statements, in order to evaluate its financial condition. The knowledge they gain could alter their competitive strategies.
A government in whose jurisdiction a company is located will request financial statements in order to determine whether the business paid the appropriate amount of taxes.
Outside analysts want to see financial statements in order to decide whether they should recommend the company’s securities to their clients.
Investors will likely require financial statements to be provided, since they are the owners of the business and want to understand the performance of their investment.
The debenture holders are interested in the short-term as well as the long-term solvency position of the company. They have to get their interest payments periodically and at the end the return of the principal amount.
A credit rating agency will need to review the financial statements in order to give a credit rating to the company as a whole or to its securities.
A company may elect to provide its financial statements to employees, along with a detailed explanation of what the documents contain. This can be used to increase the level of employee involvement in and understanding of the business.
Suppliers will require financial statements in order to decide whether it is safe to extend credit to a company.
Prospective Investors are interested in the future prospects and financial strength of the company.
A union needs the financial statements in order to evaluate the ability of a business to pay compensation and benefits to the union members that it represents.
Divorce between ownership and management and broad-based ownership of capital due to dispersal of shareholdings have made shareholders take more interest in the financial statements with a view to ascertaining the profitability and financial strength of the company.
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