Explain in detail the significance of the financial statements?


Kishore V, SME and ACW at Edumarz

Following are some of the uses of financial statements:

  1. Determine the financial position of the business: The primary purpose of financial statements is to convey information about a company’s financial situation at a specific point in time. This piece of information is utilised by a variety of stakeholders to make key business choices.
  2. To obtain credit: Financial statements give potential lenders a picture of the firm, and this information may be utilised to either grant extra credit for corporate development or limit credit to begin the recovery process.
  3. Helps investors in decision making: Financial statements provide all of the information needed by potential investors to determine how much they wish to put into the company. It is also beneficial in determining the price per share at which investors choose to invest. Obtaining investments requires a good financial statement.
  4. Helps in policy making: The financial statements assist the government in determining taxation and regulatory policies depending on how the business is conducted. Government agencies have the authority to tax a company based on its income and assets.
  5. Useful for stock traders: Financial statements provide stock traders with information about the company’s financial status, allowing them to alter their prices accordingly.

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