Identify the four basic financial statements.
Businesses commonly have a variety of stakeholders, from owners to employees to creditors, all of whom have an interest in the company being in sound shape. Your company's financial statements provide detailed information that allows people both inside and outside the company to assess its current condition, its prospects for growth and any potential financial risks.
Categories The authors of the widely used textbook "Financial Accounting for MBAs" identify four classes of financial statement users: These categories apply to small businesses in different ways.
A small business with no publicly traded stock is of little interest to investment analysts, but it may still try to attract investors. An unincorporated business has no shareholders or directors, but it does have owners, who, if they're not actively involved in day-to-day operations, need the same kinds of information.
Key Internal Users Regular financial statements give managers benchmarks for company performance. They answer key operational questions such as how this period's revenue and expenses compare with last period's, or how much inventory the company is carrying.
Managers can compare their company's performance with those of competitors' if the competitors' statements are available. Financial statements also allow employees to assess the company's health -- which, after all, plays a big part in their own financial well-being. Workers in companies with profit-sharing plans or bonuses tied to company profits also expect to see comprehensive financial statements.
Key External Users If your company wants to borrow money, lenders will expect to see financial statements prepared in accordance with generally accepted accounting principles. They'll use the statements to assess your current debt load and evaluate your ability to repay the loan and the interest.
Financial statements give creditors a picture of how risky it is to lend you money, and that influences not only the decision on whether to lend you money, but also the interest rate you'll be charged.
Suppliers may want to see your statements to evaluate your creditworthiness. Inventory is commonly sold on "trade credit," meaning you get immediate delivery with payment due later. Vendors want to know whether you can be counted on to pay.
Other Users The owners of small businesses are frequently the managers too, so their needs dovetail with those of all managers. Financial statements give owners a snapshot of their total return on investment.
If owners are looking to bring on investors, they'll probably need to provide financial statements so that the investors can do their own analysis of the company's condition. Insurance companies may require financial statements to write policies for a company.
Government agencies might want to see statements if you apply for tax breaks, grants, special loans or other programs.Essay: Importance of financial statements to managers, investors and creditors Financial statements are important reports.
They show how a business is doing and are very useful internally for a company's stockholders and to its board of directors, its managers and some employees, including labor unions. Discuss How The Financial Statements Are Useful To Managers Investors Creditors And Employees. Name: Dinh Thi Quyen Class: A4 – LT6B Number: 24 Essay: Importance of financial statements to managers, investors and creditors Financial statements are important reports.
Employees can also be potential investors and they may need the financial statements in order to decide whether or not it would be prudent to invest in the company.
Also if th ey need to negotiate wages, they can use the financial statements to prove that the company can afford to increase their wages.
Financial Statements Paper Define the purpose of accounting and identify the four basic financial statements. Explain how they are interrelated with each other, and why they are useful to managers, investors, creditors, and employees.
Essay: Importance of financial statements to managers, investors and creditors Financial statements are important reports. They show how a business is doing and are very useful internally for a company's stockholders and to its board of directors, its managers and some employees, including labor unions.
Discuss the importance of financial statements to a company and its investors and creditors and why management may take steps to improve the appearance of the company in its financial statements. Financial statements are particularly important for investors and creditors in their attempts to evaluate future cash flows from the .