What uses of financial accounting information is made by shareholders and creditors?

Your company’s financial statements are like a snapshot of how well the business is doing and where its financial health is leading at any particular time. They provide insight into the company’s profitability, liquidity position, cash inflows and outflows, and equity investments. This type of information is essential for potential investors, lenders, and shareholders alike. It helps them make critical corporate decisions.

However, different types of financial statements provide different information.

Balance sheet

By taking a detailed look at the company’s financial statements, a shareholder can determine the number of assets that the company owns compared to the total liabilities that it owes. Comparing the two figures tells them about your company’s liability position.

A balance sheet is also crucial because it mentions the total value of shareholder’s equity at any given time. Shareholders can use this information and the total number of outstanding shares (also learned from financial statements) to calculate their share in the company or the company’s total earnings per share.

The income statement

A shareholder helps you raise capital for the business by investing in it. In return, the company promises them a particular share of the total income, known as the dividend. The dividend is always calculated from the net income; shareholders need to know how much the company is making. This also helps them decide whether they would want to buy the shares at all.

The income statement gives you a detailed view of the company’s total sales, operating and non-operating expenses, interest and tax expenses, cost of goods sold, and net income. A company with a higher net income is said to have a good market reputation and stock market value.

Cash flow statement

A company with a healthy and positive cash inflow stands higher chances of paying its shareholders and creditors on time since dividends are usually paid in cash. The cash flow statement tells a shareholder how much funds the company has in order to meet any short and long-term obligations. If the company’s total net cash flow is negative, a shareholder might want to sell the shares or withdraw the investment.

Faber LLP is offering accurate, up-to-date, and regulatory compliant accounting services in Edmonton. Our services also include bookkeeping and financial statement audits. We will make sure your company’s financial statements are timely updated and readily available for your shareholders. Get in touch to get started!

Ans.: According is termed as language of business it provides necessary accounting data and information. The type of financial information that a users requires depends of his decision.

The users of financial information are essentially divided into two groups:

(1)  Internal Users

(2)  External Users.

Internal Users:

(a)  Owner or owners:

The owner or owner’s invests capital in the business with a view to earning profit they always keep their waterfowl eyes on earning of capital invested.

(b)   Managers:

The managers use various information of financial statements for policy formulation, planning, co-ordinating and communication. Proper carrying out of business needs various financial information. Managers are marketiong manager, production manager, Finance manager, general manager and company officer. The managers are to answer many important questions in runningbusiness such as, Users quarries about particular information, cash sufficiency in payment of a particular bills, unit cost of production, financial capacity for increasing salary of employees and officers, product profitable for production etc.

Employees:

The employees for the sake of ensuring their job securities keep constant watch on financial statement   and nature of financial changes. They also keep observing the profit earning capacity of the business.

(2)       External Users:

The external users of accounting information are many in number. They are stated below:

(a)       Investors:

The investors take decision aster careful study before investment the investors are to depend on necessary accounting information to know where the investment is profitable or where it is not and to take decision in the regard.

(b)       Loan givers and creditors:

The Capital supplies by the owners of the business concerned are not sufficient in many cases for running the business successfully. In that case the business concern is to depend upon loan ginners and creditors, Bank, industrial bank and insurance companies are included in loan giving organizations.

(c)       Tax authority:

Actual information is needed to know whether fixation of tax has been proper or not. Tax infixed depending upon profit of the organization and VAT or current tax is determined on the basis of trading.

(d)       Regulatory agency:-

Regulatory agencies like register of joint stock Company, stock exchange authority asks for necessary information from the companies concerned to know if the joint stock company will run as per specific lows.

(e)       Consumers:

With the help of proper management depending on accurate accounting system production cost and transport cost may be minimized and at the same time the qualitative standard of commodities can be improved. For this reason consumers remain interested to know whether in a business concern accounting system prevails or not.

(f)        Researchers and economist:

Researchers and economist want to know accounting information for finding out or innovating any system relating to a particular business concern and for economic plan.