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    Parties Intrested in Financial Statements

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    Azrael Black
    Financial statement analysis is used by various parties to obtain important information about a company's financial position and performance. Shareholders, investors and lenders use it to assess profitability, solvency, and ability to repay debts. Creditors analyze liquidity and ability to pay short-term liabilities. Management uses it to evaluate effectiveness of policies and decisions, and measure profitability, liquidity, solvency, and return on investment. The government uses it to determine tax liability and form economic policies. However, financial statements only represent past performance and do not guarantee future results or show qualitative aspects or structural changes to a company.

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    Parties Intrested in Financial Statements

    Uploaded by

    Azrael Black
    56 views2 pages
    Financial statement analysis is used by various parties to obtain important information about a company's financial position and performance. Shareholders, investors and lenders use it to assess profitability, solvency, and ability to repay debts. Creditors analyze liquidity and ability to pay short-term liabilities. Management uses it to evaluate effectiveness of policies and decisions, and measure profitability, liquidity, solvency, and return on investment. The government uses it to determine tax liability and form economic policies. However, financial statements only represent past performance and do not guarantee future results or show qualitative aspects or structural changes to a company.

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    Financial statement analysis is used by various parties to obtain important information about a company's financial position and performance. Shareholders, investors and lenders use it to assess profitability, solvency, and ability to repay debts. Creditors analyze liquidity and ability to pay short-term liabilities. Management uses it to evaluate effectiveness of policies and decisions, and measure profitability, liquidity, solvency, and return on investment. The government uses it to determine tax liability and form economic policies. However, financial statements only represent past performance and do not guarantee future results or show qualitative aspects or structural changes to a company.

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    Attribution Non-Commercial (BY-NC)
    Download as TXT, PDF, TXT or read online from Scribd
    Download as txt, pdf, or txt
    56 views2 pages

    Parties Intrested in Financial Statements

    Uploaded by

    Azrael Black
    Financial statement analysis is used by various parties to obtain important information about a company's financial position and performance. Shareholders, investors and lenders use it to assess profitability, solvency, and ability to repay debts. Creditors analyze liquidity and ability to pay short-term liabilities. Management uses it to evaluate effectiveness of policies and decisions, and measure profitability, liquidity, solvency, and return on investment. The government uses it to determine tax liability and form economic policies. However, financial statements only represent past performance and do not guarantee future results or show qualitative aspects or structural changes to a company.

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    The analysis of financial figures contained in the company's profit and loss acc ount and balance sheet

    by employing appropriate technique is known a financial s tatement analysis. Financial statement analysis is useful to different parties t o obtain the required information about the organization. Following are the part ies interested in financial statement analysis. 1. Shareholders Shareholders are interested in financial statement analysis to know the profitab ility of the organization. Profitability shows the growth potentiality of an org anization and safety of investment of shareholders. 2. Investors And Lenders Investors and lenders are interested to know the solvency position of an organiz ation. They analyze the financial statement position to know about the safety of their investment and ability to pay interest and repayment of principle amount on due date. 3. Creditors Creditors are interested in analyzing the financial statements in order to know the short term liquidity position of an organization. Creditors analyse the fina ncial statement to know either the organization is enable to pay the amount of s hort term liabilities on due date. 4. Management Management is interested to analyze the financial statement for measuring the ef fectiveness of its policies and decisions.It analyze the financial statements to know short term and long term solvency position,profitability,liquidity positio n and return on investment from the business. 5.Government Government is interested to analyze the financial position in determining the am ount of tax liability. It also helps for formulating effective plans and policie s for economic growth. limitations of FS;--Financial Statements represent the past

    It's important to remember that financial statements represent the past performa nce of a company. Past performance carries no guarantee of future results.

    However, how we analyze this past data is very important. Look at at least five years of data to identify trends in financial performance. That way, even though we can't guarantee future results, the odds of consistent performance are much higher. In other words, if a company has consistently performed well over the last 5-10 yrs., the probability of it continuing to do so in the future is much higher bar ring any current "derailers".

    Financial Statements ignore the qualitative aspects of running a company

    Just as important as the numbers is the management running the company. Details of how to assess the caliber of a company's management is covered in our Fundame ntal Analysis page.

    You must avoid the trap of being too number-bound by paying attention to the qua litative aspects of your analysis, too.

    Financial Statements don't directly show you changes in the structure of the com pany

    It's absolutely crucial to know about structural elements of a company that chan ge. For instance, a company could have added a new plant, launched a new product , be preparing for an acquisition etc.

    Financial Statements may not directly show these changes ed for the future. So how do you keep up with this?

    especially if it's slat

    The best source is the Quarterly Reports (also called 10-Q) that a company relea ses every quarter to detail it's performance. Look for the section titled "Manag ement's Discussion and Analysis of Financial Condition and Results of Operations ", or something along those lines.

    Here you will find a treasure trove of qualitative information highlighting any structural changes in the past quarter or near future.

    We've touched upon the key limitations of Financial Statements. As you have seen , these limitations are more like cautions you can easily work around them. Anal yzing Financial Statements and understanding how to deal with their limitations is a far better way to invest compared to not doing any analysis at all.

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