Learning Materials For Accounting, Management , Finance And Economics.

Saturday, October 31, 2009

Importance Of Financial Statements

Financial statements are the important sources of information to all the users of accounting information like; management, owners, debtors, creditors, employees, government agencies, financial analysts, etc. The following are the points which highlight the significance or importance of financial statements:

1. Provide Accurate Financial Data

Financial statements are the summary of information relating to profitability, and resources owned by the firm. These statements provides accurate and up to date financial data and information to the management and shareholders.

2. Easy Comparison

Financial statements provide the information which can be compared with those of other firms. It helps to understand the strength and weakness of the firm.

3. Useful For Employees

Financial statements show financial position, profitability and liquidity of the firm. Employees can use these statements to demand for increment in salary and other benefits.

4. Important For Obtaining Loan

Bankers and other financial institutional make the lending decision on the basis of financial condition of the firm.Therefore, financial statements are useful to obtain loan.

5. Tax Purpose

Government bases on financial statements of the companies for the calculation of tax revenue from the firms. So, these statements are important for tax purpose also.

6. Assist Decision Making

Another importance of financial statements is that they can be used as the basis for management decision-making purpose like planning, promotion, research and development decisions etc.

7. Importance To Investors

Financial statements are important for existing investors to assess how efficiently the firm is using their funds.

8. Assist Investment Decisions

Potential investors can obtain information with the help of financial statements which can be useful to take investment decisions.

                     Also Read: Limitations Of Financial Statements

9. Historical Facts

Financial statements are prepared on the basis of historical data. So they reveal the history of the firm.

10. To Know The Liquidity And Solvency Position

Financial statements can be used to assess the firm's liquidity and solvency position.

Therefore, financial statements are important for the management, employees, investors, government, financial institutions and the public.