Financial Statements Used By Decision Makers

Financial Statements are often used to evaluate the financial position of a company. Through the analysis investors can determine the profitability of a company and decide whether to fund money into that business. The financial statements are comprise of income statement, cash flow statement and balance sheet, each of these provides useful information of earning and expenses, of cash flows, and of assets and debts.

Financial accounting is the branch of accounting that organizes accounting information for presentation to interested parties outside of the organization. The primary financial

Financial statements provide financial decision makers with varied information presented in specific formats that is easily attainable tools to evaluate financial health. Three of the necessary financial statements are the statement of financial position or the balance sheet, operating statement also called income statement, and the statement of cash flows (Finkler, Jones, and Kovner, 2013).

 Financial accounting is an information-processing system that generates general-purpose reports of financial operations (income statement and statement of cash flows) and financial position (balance sheet) for an organization. It is used by decision makers inside and outside the firm, such as security investors, analysts, and lenders. Adding to this external orientation are external financial reporting requirements determined by law and generally accepted accounting principles.

Understanding the finances of a company is important but knowing the significance of the financial statements is crucial to the operations as well. Reviewing the statement of financial position, operating statement and statement of cash flows serve as a guidance to management and executives on the day-to-day activities of an organization (Finkler et al., 2013). For example, the statement of financial position (balance sheet) shows the assets and

This income statement tells how much money a company has brought in (its revenues) how much it has spent (its expenses) and the difference between the two (its profit). The income statement show’s a company’s revenues and expenses over a specific time frame. This statement

The profit and loss account is one of the annual accounts and main financial statements. It contains figures on the amount of profit or loss the business made over a financial year. It will also contain information on how the profit or loss arose. It’s purpose is to show how profitable the business is (If revenue exceeds expenses) or how unprofitable it is (if expenses exceed revenue). For this reason they are particularly important for generally showing an overview of the business success level during the period shown. They are also important because banks usually like to see a profit and loss account before lending to a business. The profit and loss account is made use of by internal stakeholders such as managers and managing directors for making operational decisions and planning future budgets for example. It is also particularly useful to external stakeholders such as shareholders and potential investors, this is because they must make most of their investment decisions on the figures that businesses publish and so the account allows them to compare the profitability and risk of different investments. Investment appraisal techniques like ROCE can be used with the profit and loss account to help compare the businesses to others.

The “financial statements are formal reports providing information on a company's financial position, cash inflows and outflows, and the results of operations” (Hermanson, p.22). There are four main components that make up a financial statement. The four parts are, balance sheet, income statements, cash flow and, statement of owner’s equity. The balance sheets role is to define the company’s assets liabilities and revenue of the business. The income statement shows the income within the company. Cash flow reviews the position of the company by cash payments and receipts. Lastly, the statement of owner’s equity shows the amount of earnings, stock and other capitals of people in the company. (Hermanson, p.34-35).

Accountants, business owners, investors, creditors and employees use four basic financial statements of an organization to determine the financial well-being and future earnings potential of that organization. Financial statements are a key tool in seeing and understanding the past, present and future condition of an organization. What are these financial statements and what do they mean to the reader? Do the financial statements mean something completely different to an investor, creditor, and employee?

have explained that the Financial statements provide asummarized view of the financial position and operations of a firm. Therefore, much can belearnt about a firm from a careful examination of its financial statements as invaluabledocuments / performance reports. The analysis of financial statements is, thus, an important aidto financial analysis.

Financial Statements are designed to explain the financial standing of a company through ways that offer information which will further its future success. These financial statements are crucial for making smart decisions financially, and bettering a company’s overall prosperity. Financial Statements are composed in a specific order, because numbers computed in previous statements are crucial to completing the statements that follow. It is important that these numbers are correct since they flow into one another. That being said, Financial Statements are made up of the Income Statement, Statement of Owner’s Equity, and the Balance Sheet (in that order).

Financial statements are an important aspect for all the firms since it usually is the main way to assess a firm’s financial state and can compare it with statements from previous dates. That way a firm can determine whether the firm’s financial position have improved or worsened as time passes by. It could also help in determining what the firm should fix, improve or completely change in the way it operates in order to achieve

Financial accounting is oriented toward external users and is concerned with general-purpose financial statements. These financial accounting statements are highly aggregated, report on relatively long time periods, are oriented toward the past, and must conform to external standards. These standards emphasize the use of objective data.

In other words, accounting is the language of business which can help stakeholders well understanding the business and make the correct decision. Also, the purpose of financial accounting is to provide useful information to others to show the value of a company or business. Financial accounting aims to give information that others can use so that they can understand what the company is valued at.

Ÿ The information should always give a complete picture of the state of the company whether the information is good or bad. Financial accounting is concerned with reporting information to external and internal users of financial statements. External users are people not involved with the day-to-day running of the company. Internal users are people who are involved.