Financial statements reflect a company’s financial performance. They show you assets and liabilities, profitability and a variety of metrics. Shareholders use financial statements to measure a company’s performance and managers use them to improve this performance.
Financial statements have the following three main uses:
- They provide users with financial information. A Balance Sheet indicates the health of a business, the income statement provides information about the profitability, etc
- They assist existing and potential investors, make a decision about whether or not to lend a business money.
- They help management predict future cash flows.
They also have the following purposes:
- They help creditors to assess the creditworthiness of the entity.
- They help managers and business owners plan and improve a business.
- They help employees to assess the stability of the company they work for.
- They help the government to assess tax returns.
- They help bankers in risk assessment.
- Competitors use them to assess the stability of a competitor.
As a small business owner, the most important user of financial statements is you, and the most important purpose is to keep your business sustainable and increase its growth. The proper use of financial statements can enable more effective choices, good financial prudence and help you with your future planning.
Do your best to learn how to use them. If you need help, give us a shout!