Significance of financial statements
Financial statements reveal the operating results and financial position of the business concern.
The significance of financial statements to various stakeholders is as follows:
To management: Financial statements provide information to the management to take decision and to have control over business activities, in various areas.
To shareholders: Financial statements help the shareholders to know whether the business has potential for growth and to decide to continue their shareholding.
To potential investors: Financial statements help to value the securities and compare it with those of other business concerns before making their investment decisions.
To creditors: Creditors can get information about the ability of the business to repay the debts from financial statements.
To bankers: Information given in the financial statements is significant to the bankers to assess whether there is adequate security to cover the amount of the loan or overdraft.
To government: Financial statements are significant to government to assess the tax liability of business concerns and to frame and amend industrial polices.
To employees: Through the financial statements, the employees can assess the ability of the business to pay salaries and whether they have future growth in the concern.