Why might financial information be important to potential creditors investors and employees

The inventory turnover ratio reveals the number of times a company sells and replaces its inventory in a given period. Low ratio values indicate low sales and excessive inventory.

Profitability ratios are a group of financial metrics utilized to gauge how well a company generates earnings. Do we have enough cash?

For example, a distributor resellerthe customer in this case, is dependent upon the manufacturing company from which it purchases the items it resells.

Financial statements are important company management as a means of communicating past successes as well as future expectations. He has written for goldprice.

Moreover, a company also incurs cash inflows and outflows during a period from other non-operating activities, namely investing and financing. A lower interest coverage ratio is an indication the company is heavily burdened by debt expenses.

Assume we are looking into two companies — Company A and Company B. A high debt-to-equity ratio indicates a company has vigorously funded its growth with debt.

The importance of the cash flow statement is that it shows the exchange of cash between a company and the outside world during a period, and so investors can know if the company has enough cash to pay for expenses and asset purchases. This need is also heightened in cases where the customers depend upon the entity.

Efficiency ratios help show how well companies manage assets and liabilities. Therefore, operating results during the period also concerns investors. Then you get the point. Much of the information presented in a financial report is required by law or by accounting standards.

What information do they need? Internal and External Users The users may be classified into internal and external users.

What Is the Importance of a Company's Financial Statements?

The dividend yield ratio shows the amount in dividends a company pays out yearly in relation to its share price. The interest coverage ratio measures the ease with which a company handles interest on its outstanding debt.

High ratio values commonly indicate strong sales. Investors and market analysts depend on financial statements for equity evaluation. Available evaluation metrics include profitability ratios, liquidity ratios, debt ratios, efficiency ratios and price ratios. The users of accounting information include: There are a number of tools shareholders can use to make equity evaluations, and it is important for them to analyze their stocks using a variety of measurements.

Essentially, the dividend yield ratio is a measurement for the amount of cash flow received for each dollar invested in an equity. Shareholders need financial statements to evaluate their equity investments and help them make informed decisions as to how to vote on corporate matters.

To investors, cash from all sources, not just accounting income from operations, is what pays back their investments. Did we meet our targets? All those, and many other questions and business decisions, require analysis of accounting information.

The debt-to-equity ratio measures how much financial leverage a company has, a calculation of total liabilities divided by stockholder equity.Why do shareholders need financial statements?

that adequately assesses a company's financial position and potential growth. specific financial ratios investors should monitor to get early. Intermediate Accounting Chapter 1. STUDY.

Why do shareholders need financial statements?

PLAY. financing activities. the process of communicating financial accounting information to existing and potential future investors, creditors, lenders, and other external decision makers. principals. why is financial reporting important?

Why Might Financial Information Be Important To Potential Creditors Investors And Employees Name: Dinh Thi Quyen Class: A4 – LT6B Number: 24 Essay: Importance of financial statements to managers, investors and creditors Financial statements are important reports.

Therefore, Financial Statements provide a basis for the investment decisions of potential investors. Financial Institutions (e.g. banks) use Financial Statements to decide whether to grant a loan or credit to a business.

Financial institutions assess the financial health of a business to determine the probability of a bad loan. Managers, creditors, and investors to learn about a company’s financial status and to make decisions about the company use the financial statements.

Each financial statement type will briefly be defined and explained in this paper. Also, why these statements are of interest to managers, creditors, and investors. According to Kimmel, Weygandt, and. As stated by Atrill & McLaney, the financial statements objective is to provide a snapshot of the financial position and performance of a business (Atrill & McLaney, ).

The Financial Accounts of a company describe the performance of the company in .

Download
Why might financial information be important to potential creditors investors and employees
Rated 5/5 based on 36 review