Significance of financial statements

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.