What Are Financial Statements ?
Financial statements refer to the set of documents that summarize entire financial activities of the business firm over a specific period of time. Financial statements help to make informed decisions, to ensure transparency and to evaluate the performance of the business. They provide key financial information that helps to determine the financial position of the company.
Why Are Financial Statements Important For Business ?
Usefulness or importance of preparing financial statements can be highlighted as follows:
1. To Know The Financial Position
Financial statements provide summary of financial information regarding solvency, liquidity, profitability and financial health of the business concern.
2. To Formulate Plans And Policies
Financial statements provide accurate data and financial information to the management. So, the management can formulate appropriate future plans and policies.
3. To Facilitate Decision Making
Management can take various decisions regarding research, promotion, expansion, planning, forecasting etc. on the basis of financial statements. Therefore, financial statements are crucial to make informed decisions.
4. Useful For Shareholders
Shareholders or investors can know the financial strength, earning capacity and efficiency of the management with the help of information received from financial statements.
5. Useful For Employees
5. Useful For Employees
Employee's salary, bonus and other financial incentives can be fixed on the basis of financial results provided by financial statements.
Also Read:
Also Read:
6. Useful For Tax Purpose
Company's tax liability is determined on the basis of financial statements.
7. Lending Decisions
Banks and other financial institutions use financial statements of the company to make lending decision.