Why should You Use Financial Statements?

Financial statements let you show the financial position and performance of company without checking each and every recorded transaction of company. This is also the best cause of your using financial statements before dealing with any company. This cause can help you save time and money to investigate each transaction when you are interested to invest your big money in any company, like US$100 million investment of Warburg Pincus  in India’s NDR Group. After study financial statements of NDR Groups, Warburg pincus can easily understand whether NDR group's way of allocate resources good or bad. Whether invested assets in NDR group is performing well or not.

Now, we are explaining reasons of financial statements one by one:

1st Reason : Use of Balance Sheet :

This is the main financial statement. By study it, one side, we know list of different resources and what are different liabilities others have on those resources. Company can calculate,  what % of assets from debt and what % of assets from equity? Each item of balance sheet is very useful to find large number of facts like current asset and current liabilities are useful for working capital position, reserves and surplus are useful for find security line of company etc. Moreover, we can compare balance sheet current year with previous year for finding increasing or decreasing trend of different assets and liabilities.

2nd Reason :  Helpful For Ratio Analysis

Ratio analysis's total concept is based on financial statements. All accounting ratios show the relationship among different items of financial statement like return on assets ratio is relationship of profit and total assets and debt to assets ratio is relationship between total debt and total assets of company.
3rd Reason : Universal Use

Financial statement can be used by any body for any purpose. Owners and shareholders may use it to find their profit margin and security of their investment. If employees see high profitability which is showed in company's financial statement, they can decide to demanding more compensation, promotion and rankings. Investors can use financial statement for taking their investment decisions. Creditors and lending companies can use financial statement for providing loan to company. Govt. can use financial statement for taking decision relating to taxes. Moreover, media's advertising rate is also affected from the trends of financial statement. If there is depression in industries due to any reason, financial statements of companies will show downward trend of sale and profit. At that time, media may decrease their advertising rates.

4th Reason : Market Value of Company

At the time of merge, market value of company is calculated on the basis of book value of company which is showed by financial statements.






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Accounting Education: Why should You Use Financial Statements?
Why should You Use Financial Statements?
Accounting Education
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