Users of Financial Statements

Analysis of financial statements is linked with the objective and interest of the individual / agency involved. Some of the agencies interested include Management, investors, creditors, bankers, workers, Government, and public at large.

1. MANAGEMENT

Management is interested in the financial performance and financial condition of the enterprise. It would like to know about its viability as an on going concern, management of cash, debtors, inventory and fixed asset and adequacy of capital structure. Management would also be interested in the overall financial position and profitability of the enterprise as a whole and its various departments and divisions.

2. INVESTORS

An investor is interested in the profitability and safety of his investment and would like to know whether the business is profitable, has growth potential and is progressing on sound lines. The present investors want to decide whether they should hold the securities of the company or sell them. Potential investors, on the other hand, want to know whether they should invest in the shares of the company or not. Investors (Shareholders or owners) and potential investors, thus, make use of the financial statements to judge the present and future earning capacity of the business, to judge the operational efficiency of the business and to know the safety of investment and growth prospects.

3. BANKERS AND LENDERS

Bankers and lenders are interested in serving of their loans by the enterprise, i.e. regular payment of interest and repayment of principal amount on schedule dates. They also like to know the safety of their investment and reliability of returns.

4. SUPPLIERS/ CREDITORS

Creditors dealing with the enterprise are interested in receiving their payments as and when fall due and would like to know its ability to honor its short-term commitments.

5. EMPLOYEES

Employees interested in better emoluments, bonus and continuance of the business, would like to know its financial performance and profitability.

6. GOVERNMENT

Government and regulatory authorities would like to ensure that the financial statements prepared are as per the specified laws and rules, and are to safe guard the interest of various concerned agencies. e.g.: Taxation authorities would be interested in ensuring proper assessment of tax liability of the enterprise as per the laws.

7. STOCK EXCHANGE

Stock exchange uses the financial statements to analyze and thereafter, inform its members about the performance, financial health, etc. of the company, to see whether financial statements prepared are in conformity with the specified laws and rules and to see whether they safeguard the interest of various concerned agencies.
Other Regulatory authorities (such as, Company Law Board, SEBI, Stock Exchanges, Tax Authorities etc.) would like that the financial statements prepared are in conformity with the specified laws and rules, and are to safeguard the interest of various concerned agencies. For example, taxation authorities would be interested in ensuring proper assessment of tax liability of the enterprise as per the laws in force from time to time.

8. CUSTOMERS

Customers are interested to ascertain continuance of an enterprise. For example, an enterprise may be supplier of a particular type of consumer goods and in case it appears that the enterprise may not continue for a long time, the customer has to find an alternate source.

9. PUBLIC

Enterprises affect members of the public in a variety of ways. For example, enterprises may make a substantial contribution to the local economy in many ways including the number of people, they employ and their patronage of local suppliers. Financial statements may assist the public by providing information about trends and recent developments in the prosperity of the enterprise and the range of its activities.
Different agencies thus look at the enterprise from their respective viewpoint and are interested in knowing about its profitability and financial condition. In short a detailed cause and effect study of profitability and financial condition is the over all objective of financial statement analysis.