The Users of Balance Sheet

Lets understand who are the common users of Financial statements

The Balance Sheet is widely recognized as one of the best indicators of the financial health of the company. It provides information to various stakeholders about the company. There are many users of the financial statements produced by an organization.

Lenders

An entity loaning money to an organization will require financial statements in order to estimate the ability of the borrower to pay back all loaned funds and related interest charges.

Government

A government in whose jurisdiction a company is located will request financial statements in order to determine whether the business paid the appropriate amount of taxes, subsidies etc based on the figures quoted in the Balance Sheet

Customers

When a customer is considering which supplier to select for a major contract, it wants to review their financial statements first, in order to judge the financial ability of a supplier to remain in business long enough to provide the goods or services mandated in the contract

Suppliers

Suppliers will require financial statements in order to decide whether it is safe to extend credit to a company

Employees

They are interested in knowing the profit figures and the growth of the company. Their incentives and promotions are dependent on those figures

Investors

Investors will likely require financial statements to be provided, since they are the owners of the business, and want to understand the performance of their investment. The estimation of future growth of a company is done using the Balance Sheet.

Company management

The management team needs to understand the profitability, liquidity, and cash flows of the organization every month, so that it can make operational and financing decisions about the business

Owners/Shareholders

The primary aim of a Balance Sheet is to provide financial information of the business to its owners

Competitors

Entities competing against a business will attempt to gain access to its financial statements, in order to evaluate its financial condition. The knowledge they gain could alter their competitive strategies

Investment analysts

Outside analysts want to see financial statements in order to decide whether they should recommend the company's securities to their clients Outside analysts want to see financial statements in order to decide whether they should recommend the company's securities to their clients

In short, there are many possible users of financial statements, all having different reasons for wanting access to this information.

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CA N Raja
A Chartered Accountant with tonnes of passion for teaching.