1. FS as a tool in decision making on the point of view of:
Financial statements provide a view on the company’s financial changes within a specific reporting period and confirm its overall state. They give information such that they provide shareholders with a picture of how well the company is doing. These enable them to evaluate a stock’s worth and aid them in making stock-related decisions such as buying/selling/retaining which provide them further on the status of their return on investment. Additionally, they reflect how the shareholders’ money are invested, its outcome and effect to the company. b. Management of the company
Financial Statements are useful to a company’s management in a number of ways. Most of the time, managers, presidents and other company heads rely on FS to carry out their management responsibilities such as operation planning and control. It provides them with specific details needed to carry out their planned activities and strategies to meet their goals. * Provide analysis of the state of the company in order to evaluate the flow of fund, check if cash generated is still enough to meet the demands/services provided by the company. * Help budget the company's money for future activities.
* Help set targets in sales and revenues.
* For multi-national companies, FS analysis can help on deciding on which business unit to maintain/give up. * Adjust/ reorganize management strategy in order to further meet company goal and optimize income. * Help decide what rules or actions could be implemented that will be suitable given the company's situation. * FS analysis of industry competitors can also help the management decide on where to focus to gain competitive advantage * Analyze effects of the risks/strategies taken by the company. * Aids in improving over-all entity efficiency since FS reflects which departments are profitable and which are not. * It also provides them with information if the company’s assets are properly used and accounted for.
c. Creditors, employees, suppliers, bankers
With the help of an FS, creditors, suppliers and bankers will know if the company is capable of disbursing payment for the loans or other payables that it has/will acquire. It gives them a general idea if a business is financially sound. Moreover , they can also asses the amount of supplies/cash needed by the company through analysis of financial statements. Assessing the stability of the business is very important for its employees. The company must at least update the employees of the company's performance to help them understand various business decisions like cost cutting and manpower lay-offs.it will also provide them with information about their benefits such as employee loans, bonuses and other variable pays. d. Prospective investors
Prospective investors usually asses companies through FS analysis. Their investment decisions greatly rely on stock price movement which is dependent on the profitability and stability of a company. Financial statements helps them gauge the status of the company and determine a good investment. It will also help them estimate how long they can have their return of investments.
e. Government regulatory agencies.
Since financial statements indicate the financial capability of the business, it reveals the income/net worth of the company which is essential in checking whether precise amounts are paid on taxes and other government payables. It also helps them asses if the company is remitting payments to other government agencies which mostly includes benefits for its employees. Annual audits are implemented to monitor the company's activities and avoid cases of tax evasion. f. Other stakeholders
Financial statements are also looked at by prepaid services sectors such as insurance companies since they represent an company’s state. If the condition seems that they will lose more...
Please join StudyMode to read the full document