Explain how financial statements are useful to the various parties who are interested in the affairs of an undertaking?


Kishore V, SME and ACW at Edumarz

The many stakeholders interested in a company’s financial accounts can be generally categorised as follows:
Internal and external internal users are divided into two categories: 

  • 1. internal users and 

  • 2. external internal users.

1. Business owners: A business owner’s interest is in understanding whether the company makes a profit or loses money. They are more concerned with the viability of the cash that has been put in the company.

2. Management: Financial statements assist management in developing new policies for corporate growth as well as providing the information needed to adopt various cost-cutting methods.
3. Employees: They care about getting paid on time, getting incentives, and getting appraisals at the right time. Financial statements assist employees in learning about the company’s financial situation so that suitable compensation may be sought.

External Users

1. Banks and Financial Institutions: Because these institutions offer credit, it is vital to evaluate the organization’s liquidity, solvency, and creditworthiness in order to meet future loan needs.
2. Creditors: Because businesses owe money to creditors, it’s critical for them to know about the company’s creditworthiness.
3. Investors or potential investors: These are people who will offer finances by investing in a firm, therefore an organization’s viability and solvency will aid in investment selections.
4. Tax authorities: They require information in order to determine the sorts of taxes that can be imposed on the company.

5. Government: Information is required by the government in order to calculate national income, GDP, and industrial growth. Financial statements aid government policymakers in addressing concerns such as poverty and unemployment.
6. Consumers: When a company publishes financial statements, it informs customers about the profits it earns and the relative costs of delivering services at low prices, which helps the company build a positive reputation.
7. Public: Financial accounts are made public to show how a company spends money on social welfare.
8. Researchers: Financial statements are used by researchers to forecast market trends and conduct research initiatives.


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