1.
Availing Credit from Lenders
Every business needs to borrow funds for
functioning. They have to rely on lenders like banks and financial institutions
for this purpose. Financial statements play a huge role in this purpose. Since
they show a company’s liabilities, debts and profits, investors can use them to
make informed decisions.
2.
Use for Investors
Investors also extensively use a company’s
financial statements to assess its finances. That helps them figure out how the
company’s solvency will be in the longer term. Thus, the better a company’s
financial position is, the greater the investment it will receive.
3.
Use for Stock Exchanges
Regulatory bodies like SEBI and stock
exchanges like BSE and NSE also use financial statements for many reasons. SEBI
can assess a company’s internal matters using them to ensure the protection of
investors. Even stock advisers require them to frame their quotes. They are
also a great source of information for stock traders and investors.
4.
Information on Investments
The shareholders of a company rely on these
statements to understand how their investments are paying off. If a company is
earning profits, they might decide to invest even more money. On the contrary,
stagnant profits or even losses will prompt them to pull out. Despite all these
uses of financial statements, there are some limitations to them as well.
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