How Financial Statements Helps In an Organization?
As an individual investor, a manager or a business owner, you will need to know how financial statements help in an organization. These are basically the reports that show how the business is doing financially and what is the status of the cash flow. The reports will show how the company is going to manage its assets and liabilities in a period of time. It will also show the financial position of the company at a certain point of time.
Let us discuss how financial statements help in an organization.
- Firstly, the financial statements will show the organization’s ability to meet its obligations in terms of cash and assets. They will also show the degree of risk that is involved in the project. Therefore, the financial statement will provide management with a comprehensive overview of the current or future state of affairs and their relation to the overall goals of the organization. Apart from providing management a comprehensive overview, the financial statements will also allow management to plan effectively for the future.
- Secondly, we will discuss how financial statements help in an organization in the prevention of fraud or theft. Let us say, for instance, that there is a company that produces artificial flowers. There may be someone who wants to steal these flowers in order to sell them illegally. If the financial statements are available, the management will be able to detect any attempt to defraud the company and prevent it from being victimized.
- Thirdly, we will discuss how financial statements help in an organization in the preparation of the budget. Without the help of the financial statements, the budget can not be prepared. For example, the budget can not be prepared without knowing how much money is available to invest. Financial statements help in the preparation of the budget. Therefore, financial reporting is very important in any organization.
- Fourthly, the financial statements provide information regarding the owner and beneficiaries of the company. Now, in order to be able to properly control the assets and liabilities of the company, we need to know who owns it. For that, we need to calculate the cash flows and balance sheet. By calculating these, we can see the potential losses or gains of the company. Therefore, financial statements play a huge role in determining the future success or failure of the company.
- Fifthly, financial statements help to solve problems regarding partnerships and acquisitions. Let’s say, a company wants to acquire a particular firm. Before acquiring the firm, the management will calculate the price at which the firm is sold. If the price is too high, the acquisition will not go through, whereas, if the price is low, the acquisition will go through.
Why are Financial Statements so Important in an Organization?
Why are financial statements so important in an organization? What purpose do they serve? For every organization, the financial statement is a summary of the past and future operations of the company and what expectations are involve. If this information can be communicated to the Board of Directors with clarity and without unnecessary delays, then it will help to keep them on track and reduce any potential misunderstandings.
A financial statement is a summary of the company’s financial information, showing the income and other ratios associate with it and presenting it in a format that can be understood by the average person. While management usually produces the financial statements as a part of their review process for each quarter. It is important that a regular schedule be maintain so all of the pertinent information can be include on them. The financial analysis include information such as:
Why are financial statements important in an organization?
First, if there is an audit by outside people, these financial statements provide the necessary evidence to allow them to properly verify the activities of the company. It also shows them what the weaknesses are so that steps can be takes to correct them. For example, if the largest stockholder has given notice of a possible hostile takeover, then the financial analysis will show this. This shows why there are quarterly reports that give the stockholders information about that activity. It shows what the company did to fix any problems, whether they had any or not, and how they will address them going forward.
Why are financial statements important in an organization?
Second, these statements allow the Board of Directors to view the data to make sure that the business is achieving its goals. This information is available for all areas of the business, not just where the highest number of sales takes place. It shows what kind of marketing and promotional budgets are being spend, what the financial results are overall, what the business is doing financially, and what the future may hold. The financial statements even allow the Board of Directors to see how well the stock market is performing.
Why are financial analysis important in an organization?
Third, they allow investors to see the future viability of the business. And allow them to assess the worth of buying it. Whether it is undervalue or overvalue. This is done through the use of different techniques. And the resulting information is used as a basis on whether to buy or sell the company.
Why are financial statements important in an organization? Fourth, these statements show the history of the corporation, as well as its future. The financial analysis can show trends in the company. And this provides a sense of direction for the future of the company. There are many other reasons that the importance of financial analysis is so important. But these four give just a small taste of the reasons why they are so important.