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Why do the following parties take interest in financial statement 1 creditor 2 government 3 shareholder 4 bank
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Why do the following parties take interest in financial statement 1 cr...
Parties interested in Financial Statements
There are many people using the financial statements. They are assessing the financial statements in terms of profitability, liquidity and solvency. Some of the interested parties of financial statements are given below.
1. Shareholders: In every public limited company, shareholders are the real owners of the company. Hence, they want to know the way of utilizing their investments and ascertain the profitability and financial strength of the company.
2. Debenture holders: Debenture holders are the lenders or creditors of the company. They want to know the short term and long term solvency position of the company. Short term solvency is find out to know whether interest is payable by a company and long term solvency is find out to know whether principal amount is payable by a company.
3. Creditors: They are the suppliers of the raw materials and other necessary items on credit to the company. They are interested to know the liquidity position of the company.
4. Commercial Banks and Financial Institutions: Both commercial banks and financial institutions may lend both short term loan and long term loan. Hence, they are interested to know the short term solvency, long term solvency and profitability of the company.
5. Prospective Investors: Prospective investors who are going to buy the shares of the company in the very future. Hence, they are interested to know future prospects and financial strength of the company.
6. Employees: The regular payment of wages and salaries are based on the financial position of the company. Hence, they are interested to know financial position of the company.
7. Trade Unions: The interest of the employees is protected only by the trade union. The interest of the employees can be protected if the financial position of the company is very strong. Hence, they are interested to know the financial position of the company.
8. Loyal Customers or Regular Customers: Some customers are loyal to the company since they are buying the products for a long period continuously. Hence, they are interested to verify the financial strength of the company.
9. Tax Authorities: Tax payable is based on the amount of profits earned by the company. Hence, the tax authorities are using the financial statements for calculating profits earned by the company.
10. Government Departments: Department of company affairs and other government departments are dealing with the industry in which the company is engaged are interested in the financial information relating to the company.
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Why do the following parties take interest in financial statement 1 cr...
1. Creditors:
- Creditors are individuals or organizations that lend money or provide goods and services on credit to a company.
- They are interested in the financial statements of a company to assess its creditworthiness and ability to repay their loans.
- By analyzing the financial statements, creditors can evaluate the company's liquidity, profitability, and overall financial health.
- They pay close attention to the company's balance sheet to determine its debt-to-equity ratio, current assets, and current liabilities.
- This information helps creditors make informed decisions about extending credit to the company and setting appropriate terms and conditions.
2. Government:
- Governments have several reasons for taking an interest in a company's financial statements.
- They use the financial statements to ensure compliance with tax laws and regulations.
- By reviewing the financial statements, governments can verify the accuracy of reported taxable income and assess the company's tax liability.
- Financial statements also provide insights into a company's economic activities, employment levels, and overall contribution to the economy.
- Governments may also use the financial statements to monitor and regulate industries for public interest and consumer protection.
- Additionally, financial statements help governments make informed decisions regarding economic policies, subsidies, and grants.
3. Shareholders:
- Shareholders are the owners of a company who have invested their capital in exchange for ownership shares.
- They are interested in the financial statements to evaluate the company's past performance, current financial position, and future prospects.
- Financial statements provide shareholders with information about the company's profitability, earnings per share, dividends, and overall return on investment.
- Shareholders also analyze the balance sheet to assess the company's assets, liabilities, and equity, which helps them determine the value of their shares.
- By reviewing the financial statements, shareholders can make informed decisions about buying, holding, or selling their shares.
- They can also use the information to engage in discussions with the company's management and participate in voting on important matters.
4. Banks:
- Banks are financial institutions that provide loans and other financial services to individuals and companies.
- Banks use the financial statements to assess the creditworthiness and risk profile of a company when considering loan applications.
- By reviewing the financial statements, banks can evaluate the company's ability to generate sufficient cash flows to repay the loan and interest.
- They analyze the company's liquidity, solvency, profitability, and overall financial health to determine the level of risk associated with lending to the company.
- Banks also review the company's balance sheet to assess its collateral and determine the loan-to-value ratio.
- The financial statements help banks make informed decisions about loan approvals, interest rates, and loan terms.
- Creditors are individuals or organizations that lend money or provide goods and services on credit to a company.
- They are interested in the financial statements of a company to assess its creditworthiness and ability to repay their loans.
- By analyzing the financial statements, creditors can evaluate the company's liquidity, profitability, and overall financial health.
- They pay close attention to the company's balance sheet to determine its debt-to-equity ratio, current assets, and current liabilities.
- This information helps creditors make informed decisions about extending credit to the company and setting appropriate terms and conditions.
2. Government:
- Governments have several reasons for taking an interest in a company's financial statements.
- They use the financial statements to ensure compliance with tax laws and regulations.
- By reviewing the financial statements, governments can verify the accuracy of reported taxable income and assess the company's tax liability.
- Financial statements also provide insights into a company's economic activities, employment levels, and overall contribution to the economy.
- Governments may also use the financial statements to monitor and regulate industries for public interest and consumer protection.
- Additionally, financial statements help governments make informed decisions regarding economic policies, subsidies, and grants.
3. Shareholders:
- Shareholders are the owners of a company who have invested their capital in exchange for ownership shares.
- They are interested in the financial statements to evaluate the company's past performance, current financial position, and future prospects.
- Financial statements provide shareholders with information about the company's profitability, earnings per share, dividends, and overall return on investment.
- Shareholders also analyze the balance sheet to assess the company's assets, liabilities, and equity, which helps them determine the value of their shares.
- By reviewing the financial statements, shareholders can make informed decisions about buying, holding, or selling their shares.
- They can also use the information to engage in discussions with the company's management and participate in voting on important matters.
4. Banks:
- Banks are financial institutions that provide loans and other financial services to individuals and companies.
- Banks use the financial statements to assess the creditworthiness and risk profile of a company when considering loan applications.
- By reviewing the financial statements, banks can evaluate the company's ability to generate sufficient cash flows to repay the loan and interest.
- They analyze the company's liquidity, solvency, profitability, and overall financial health to determine the level of risk associated with lending to the company.
- Banks also review the company's balance sheet to assess its collateral and determine the loan-to-value ratio.
- The financial statements help banks make informed decisions about loan approvals, interest rates, and loan terms.
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Why do the following parties take interest in financial statement 1 creditor 2 government 3 shareholder 4 bank Related: NCERT Solution - Chapter 3 : Financial Statements of a Company-2, Class 12, commerce
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Why do the following parties take interest in financial statement 1 creditor 2 government 3 shareholder 4 bank Related: NCERT Solution - Chapter 3 : Financial Statements of a Company-2, Class 12, commerce for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Why do the following parties take interest in financial statement 1 creditor 2 government 3 shareholder 4 bank Related: NCERT Solution - Chapter 3 : Financial Statements of a Company-2, Class 12, commerce covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Why do the following parties take interest in financial statement 1 creditor 2 government 3 shareholder 4 bank Related: NCERT Solution - Chapter 3 : Financial Statements of a Company-2, Class 12, commerce.
Why do the following parties take interest in financial statement 1 creditor 2 government 3 shareholder 4 bank Related: NCERT Solution - Chapter 3 : Financial Statements of a Company-2, Class 12, commerce for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Why do the following parties take interest in financial statement 1 creditor 2 government 3 shareholder 4 bank Related: NCERT Solution - Chapter 3 : Financial Statements of a Company-2, Class 12, commerce covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Why do the following parties take interest in financial statement 1 creditor 2 government 3 shareholder 4 bank Related: NCERT Solution - Chapter 3 : Financial Statements of a Company-2, Class 12, commerce.
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