Benefits of Financial Statements
Financial statements are the formal records or reports of the financial undertakings of a person or a business. This is the central source of an organization’s financial data to people outside the company. They convey to both the management and interested outsiders an in depth picture of the organization’s financial position and profitability. The following are benefits of financial statements.
1. Promote better management
An organization can examine its own financial performance over a certain period through looking at financial statements. This enables the managers to have a better comprehension of the company and identify situations or trends that might be disadvantageous. For instance, careful examinations of the financial statements could show when the total number of inventory available will exceed the projected sales. Using this data, a business can hold off buying extra inventory till the current stocks are reduced.
2. Attract investors and buyers
Potential buyers of your business may demand information to assist them better comprehend your company. In the present business climate, a potential buyer can come along at any time, and if you are not ready to back the alleged worth of your company with financial information, you might miss the chance. For those seeking extra capital for funding their business growth, prospective investors, vendors and lenders will require seeing financial statements prior to agreeing to offer any funding.
3. Reduce chances of fraud
The other major advantage of financial statements is that it helps lower the vulnerability of a company to fraud. Since they offer an insight into a company’s operating results, financial statements can easily detect irregularities that might be linked to fraud. Furthermore, the act of investigating and preparing the financial statements tells workers and managers that they are accountable for their actions.
The only limitation of financial statements is that they overlook the skills and productivity of the workers in a company as it is unable to assess the skills present in the organization.