How Financial Statements Used by Stakeholders
The main purposes of financial statements are to provide financial information to the users in order to show how the company is doing in terms of performance and what condition it is in. Likewise, the financial statements are very useful to a wide range of stakeholders in helping them to make financial decisions involving the company.
8 Users of Financial Statements
The main users of financial statements include investors and shareholders, employees, customers, suppliers, lenders, government, the general public, and management.
| Users of Financial Statements | |
|---|---|
|
Investors and shareholders |
They are usually the owners of the company so they want to know how much financial benefit is the company giving them and how much the company is worth. They usually concern whether the benefit the company provides is worth the risk they are facing by investing in the company. |
|
Employees |
Their job security is 100% related to the company so they usually want to know how the company is doing. If the company is making a good profit, they can expect secure employment and the possible pay rise. Otherwise, if the company is doing badly, they might face the risk of losing their job. |
|
Customers |
The general customers who do not depend much on the company’s supplies might not concern about the company’s performance. However, some customers are dependent much on the company’s supplies. Hence, they usually want to know how the company is doing and whether the company can continue to supply them the goods or materials into the future or not. This might occur with specialized products; e.g. if a company makes phone screens, its customers that manufacture the phones would require specialized phone screens from it and they may not have many options to choose suppliers. |
|
Suppliers |
Suppliers usually provide the credit term for the goods or materials the company purchases, hence they want to want to know if they will get paid after goods or material delivered to the company. They might decide to provide goods or materials to the company only on cash purchase if the company is doing badly. |
|
Lenders |
They are the people who provide loans to the company; hence they want to know if the company can to pay back the loan so they can get their money back. They also want to know if they should provide more loans to the company or not based on the company’s position and performance. |
|
Government |
Government might concern how it should set policies based on the economy and how the company impacts the economy. Another reason the government wants to know about how the company is doing is related to the tax that the company needs to pay. The tax payable by the company itself is based on the company’s income statement which tax authorities usually use as the basis of their assessment. |
|
General public |
The general public might concern about many things related to the company such as how it impacts the economy, the environment, the community, the wellbeing of the society and the jobs that the company provides to the local community, etc. Some companies also support the community by providing the CSR (Corporate Social Responsibility) programs. |
|
Management |
Management would concern about the company’s performance and its position in the market. In this case, financial statements will be useful in showing how the company is doing. However, management mostly uses the monthly management accounts as their main sources to make decision in the company. This is due to monthly management accounts provide them more detail information such as the detail report of the company’s profitability, liquidity and efficiency. |