Question

When considering companies' financial statements, we often think of investors and analysts using the information contained in those statements to assess whether or not to invest in the companies. However, financial statements are not just for investors. Please explain who else should be concerned with a company's financial statements and why they are important. As portfolio activities are to be self-reflective, please make sure to connect the portfolio assignment to: . Your personal experiences. Reflect on how this assignment topic is applicable to and will benefit you • Course readings and any external readings. • Discussion forum posts or course objectives The Portfolio Activity entry should be a minimum of 500 words and not more than 750 words. Use APA citations and references if you use ideas from the readings or other sources

Answer 1

There are many users of the financial statements produced by an organization. The following list identifies the more common users of financial statements, and the reasons why they need this information:

• Company management. The management team needs to understand the profitability, liquidity, and cash flows of the organization every month, so that it can make operational and financing decisions about the business.
• Competitors. Entities competing against a business will attempt to gain access to its financial statements, in order to evaluate its financial condition. The knowledge they gain could alter their competitive strategies.
• Customers. When a customer is considering which supplier to select for a major contract, it wants to review their financial statements first, in order to judge the financial ability of a supplier to remain in business long enough to provide the goods or services mandated in the contract.
• Employees. A company may elect to provide its financial statements to employees, along with a detailed explanation of what the documents contain. This can be used to increase the level of employee involvement in and understanding of the business.
• Governments. A government in whose jurisdiction a company is located will request financial statements in order to determine whether the business paid the appropriate amount of taxes.
• Investment analysts. Outside analysts want to see financial statements in order to decide whether they should recommend the company's securities to their clients.
• Investors. Investors will likely require financial statements to be provided, since they are the owners of the business, and want to understand the performance of their investment.
• Lenders. An entity loaning money to an organization will require financial statements in order to estimate the ability of the borrower to pay back all loaned funds and related interest charges.
• Rating agencies. A credit rating agency will need to review the financial statements in order to give a credit rating to the company as a whole or to its securities.
• Suppliers. Suppliers will require financial statements in order to decide whether it is safe to extend credit to a company.
• Unions. A union needs the financial statements in order to evaluate the ability of a business to pay compensation and benefits to the union members that it represents.