Users of Financial Statements
a) Five Users of Company Financial Statements
There are various internal and external users of company financial statements. Internal users include employees, directors and shareholders, while external users include the government, the public, suppliers and creditors.
1. Investors
Both current and potential shareholders/investors are the providers of capital in a company. They are interested in information that will help them determine whether to invest in the company. They are comparing different investment options and want to know where they will get the highest returns from their investment. They are interested in both short-term and long-term performance of the company.
In the short-term, they are interested in looking at the financial statements to know whether the company has made profit – which translates into dividends, and therefore income for the current investors.
For the long term, the investors want to deduce the trend of the company by comparing the financial statements of the company over the preceding years and comparing them with competitors’ statements. Improved financial stability of the company will imply increase in the value of shares – and therefore an increase in their wealth.
The investors therefore need statements that are clear and easy to understand for them to effectively judge the performance of the company.
2. The Government
The government needs financial information from companies for various purposes:
i) Tax
The government gets income from various taxes: VAT, corporate tax, income tax etc which is pegged on the figures in the financial statements. From the financial statements, the government will determine the tax payable by institutions. ii) Planning
By collating the information provided in financial statements from various industries, the government comes up with statistics from which it can deduce trends, and use to make policies as well as use them for economic planning. iii) Monitoring and Regulation
Some
There are various internal and external users of company financial statements. Internal users include employees, directors and shareholders, while external users include the government, the public, suppliers and creditors.
1. Investors
Both current and potential shareholders/investors are the providers of capital in a company. They are interested in information that will help them determine whether to invest in the company. They are comparing different investment options and want to know where they will get the highest returns from their investment. They are interested in both short-term and long-term performance of the company.
In the short-term, they are interested in looking at the financial statements to know whether the company has made profit – which translates into dividends, and therefore income for the current investors.
For the long term, the investors want to deduce the trend of the company by comparing the financial statements of the company over the preceding years and comparing them with competitors’ statements. Improved financial stability of the company will imply increase in the value of shares – and therefore an increase in their wealth.
The investors therefore need statements that are clear and easy to understand for them to effectively judge the performance of the company.
2. The Government
The government needs financial information from companies for various purposes:
i) Tax
The government gets income from various taxes: VAT, corporate tax, income tax etc which is pegged on the figures in the financial statements. From the financial statements, the government will determine the tax payable by institutions. ii) Planning
By collating the information provided in financial statements from various industries, the government comes up with statistics from which it can deduce trends, and use to make policies as well as use them for economic planning. iii) Monitoring and Regulation
Some