Who are the Users of Financial Statements?
Financial statements prepared by the Companies are used by different categories of individuals, corporates in the sense relevant to them. The most common users to the financial statements are listed below:
- Management of the Company
- Government and Government Agencies
- Investment Analysts
- Rating Agency
Top 10 Users of Financial Statements
#1 – Management of the Company
The management of the Company is the first and foremost user of the financial statements. Although, they are the ones who prepare the financial statements the board and the management as a whole need to refer to them while considering the progress and growth of the Company. The management of the Company looks at the financial statement from the perspective of liquidity, profitability, cash flows, assets and liabilities, cash balances, fund requirements, debt to be paid, project financing and various other days to day operational activity. Simply put, management of the Company needs the financial statements to make decisions about the business.
#2 – Investors
Investors are the owners of the Company, they would like to understand keep update with the financial performance of the Company. They would like to take the decision based on the financial statement whether they need to keep invested or move out of the Company based on its performance.
#3 – Customers
Customers need to view the financial statements of the Company from which they are procuring goods or services. Big clients would like to have a long-term partnership or contracts with the Company thus they would like to work with a Company which is financially stable. Further, a financially strong Company can provide its customers with credit sales and can deliver products and services at some discount than the market.
#4 – Competitors
Competitors would like to know the financial status of the competing Company. They would like to maintain the competitive edge on their competitors and hence, would like to know the financial health of the other Company. Further, they could decide to change their strategy looking at the statements.
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#5 – Government and Government Agencies
Government agencies like the Income-tax department, the sales tax department would like to go through the Company’s financial statements to keep a check if the Company paid appropriate taxes. They would like to do future tax predictions based on the performance of the Company and industry practices.
#6 – Employees
Employees look at the financial statement of the Company from different perspectives. They would like to know if the Company is doing as their bonus and increments depend on the financial performance of the Company. Also, they would look to have a deep understanding of the business and the current industry situation which will be available in the financial statements. The Company may choose to involve employees in decision making hence, it would like the employees to know and understand the financials of the Company.
#7 – Investment Analysts
Investment analysts keep a close eye on the financial statements of the Company. They have good industry knowledge and be updated about how the Company is performing. Based on their analysis from the financial statements, the investment analysts make the decision whether to recommend the stock of the Company to their clients or not.
#8 – Lenders
lenders like traditional banks, financial institutions, creditors would like to check the ability of the Company to pay the debt. Thus, they go through the financial statements of the Company and see if they would provide a loan.
#9 – Rating Agency
A credit rating agency reviews the financial statement of the Company to give credit rating to the debt instruments of the Company. The issuing Company has to provide all information to the credit rating agency so as to get a rating of the securities it is issuing to raise funds. The investors of these securities can make an informed decision once a rating agency has provided a rating which is obviously based on the financials of the Company.
#10 – Suppliers
Suppliers like the customers would like to deal with the Companies which has good financial health. Thus, they are also users of financial statements and make decisions to provide credit to the Company.
Financial statements of the Company are the most important information about the Company. It gives a clear picture of the financial affairs of the Company, its performance which can be compared with the competitors and peers. Thus, various users as discussed in the article read and understand the financial statement of the Company for their own purposes.
This has been a guide to Users of Financial Statements. Here we discuss the Top 10 Users of Financial Statements including Investors, Customers, Competitors, Employees, and Rating Agencies, etc. You can learn more about financing from the following articles –
- Financial Statement Analysis Objectives
- 4 Components of Financial Statements
- Importance of Financial Statements
- Objectives of Financial Statements
- Financial Statement Limitations
- What is Interim Financial Statements?
- What is Pro Forma Financial Statements?
- What is Audited Financial Statements?
- What is Statement of Financial Position?