Question

Evaluate at least (2) factors that make financial statement analysis essential to management, investors, and creditors. Provide a rationale for your response.

Answer 1

For Investors -

a) It is important to evaluate the financial statements whether a particular company is financially strong or can earn more profits in order to invest in that company or not.

b) It is important to evaluate the financial statements after making the investment in a particular company whether it can able to pay the dividends or not

For Creditors -

a) It is important to evaluate the financial statements whether a particular company is financially strong or can earn more profits in order to give loans to that company or not or it can able to clear the loans after the given period or not.

b) It is important to evaluate the financial statements after providing the loans to a particular company whether it can able to pay the interests regularly or not based on past financial statements.

For Management -

a) Whether estimated targets relating to regular operations like to increase sales, to product more goods by using less materials or to reduce in incurring costs in order to increase profits etc, it is required for the management to evaluate the financial statements of a company.

b) To know the current performance of a company in terms of how it is operating towards its goals, management is required to access the financial statements of that company in order to know or to take decisions based on the performance.