Who are the top 10 Users of Financial Statements?

 Let us see, who are the top 10 Users of Financial Statements. This helps us analyse how these users of financial statements utilise the information contained in financial statements to make decisions.

Who are the users of financial information?

The users of financial information are those who read and analyse the financial statements to make appropriate decisions. The financial statements include profit and loss account, balance sheet, cash flow statement. These users want to know the financial performance (profit and loss) and financial position (assets and liabilities) of the business entity. For example, the Management of the company needs to read and analyse the financial statements to make financial decisions, operational decisions. The government of the state uses financial statements to levy and collect taxes. Similarly, Suppliers or lenders need financial statements to assess the creditworthiness of the business entity. Lenders would like to know the ability of the business entity to pay loans or dues. 

The top 10 Users of Financial Statements

There are different people who want to know the financial performance which is profit or loss incurred by the business entity. They want to know the net worth, financial standing, capital employed, net income, net assets,  creditworthiness, working capital of the business entity to make useful decisions. For this purpose, they will read and analyse the financial statements. These users are listed below.

1. Company Management

Management of the company requires financial information to make operational and financial decisions such as decisions regarding the increase in profit, assets, cash flows, net worth as well. Management may take many decisions considering the information contained in the financial statements

2. Suppliers 

Suppliers of goods and services would like to know the creditworthiness and due amounts repaying capability of the business entity. This helps to know whether the suppliers can extend credit or provide credit to the business entity in future

3. Customers and Clients

Customers or clients would like to know whether the business entity is going to survive for the long period to serve its customers and clients with quality goods or services. If the business entity is able to satisfy its customers and clients with quality goods and services then customers and clients are interested in the long term survival or growth of the business entity.

4. Employees

Employees of the business entity would like to know the financial performance or position to expect a good return or compensation for their hard work and meritorious services rendered. This helps them to assess the ability of the company to pay salaries, bonuses and incentives to employees. They are also interested in the growth and expansion of the company to enhance their career or growth in the company.

5. Government

The government especially tax authorities are curious to know the financial performance or profits of the company to levy and collect taxes. These taxes are calculated based on the profits or sales made by the business entity. The government may also provide incentives, grants, loans, financial assistance to the companies which require funds or making losses considering the financial information as well.

6. Investors

Investors of the company are those who contribute money or funds to the company. These investors are interested in the financial performance such as net income earned for the current year, earnings per share, Price Earnings ratio. This helps them to know whether the company is adding value or eroding value to the investors. This also helps investors to take investment decisions whether to invest or disinvest in the company.

7. Lenders

Lenders, banks and financial institutions are interested in the financial health or financial condition of the company. Financial performance is known by reading and analysing the financial statements. This helps lenders to know whether the company has the ability to pay the principal loan amount and interest amount due to them. This also helps to know the creditworthiness of the company

8. Competitors

Competitors are interested in the profits, net assets, net worth, market share and financial condition of the business entity. This helps competitors to assess the level of competition and financial performance and condition of the business entity. It also helps to design strategies for growth and to gain a competitive edge over rivals as well.

9. Investment Analyst

Investment analysts read and analyse the financial statements to know financial health and condition. This would help analysts to suggest their clients whether to invest or disinvest in the company 

10. Credit Rating Agencies

The credit rating agency will analyse and review the financial statements to give the credit ratings to the debt instruments of the company. This would help investors to decide whether to give loans or funds to the company and purchase the debt instruments issued by the company.

Conclusion:

Thus, now we can see, who are the top 10 users of financial statements are company management, suppliers, customers, employees, government, investors, lenders, banks, investment analyst, credit rating agencies. These users of financial information read and analyse the financial statements to make useful decisions.

Related blogs:

What is Journal? Its features, types, Objectives and uses

What are Ledgers? 

What is Trial Balance?

What are Financial Statements? Its features, types, uses

What is Income Statement (Profit and loss a/c)?

What is Balance Sheet (Position Statement)?

What is Cash Flow Statement?

What is Bookkeeping? Its features, objectives, uses?

What are Subsidiary Books? Its features, types, objectives, uses

What is Single Entry System? Its features, types, objectives, uses

What is Double Entry System? Its features, objectives, uses