Dec 24, 2010

FINANCIAL STATEMENTS: WHO USES THEM AND WHY

Here is a br ief  list of  who uses financial statements and why. This list gives only a few examples and is by no means complete.

  1. Ex isting equity investors and lenders, to monitor their investments and to evaluate the performance of management  
  2. Prospective  equity  investors  and  lenders,  to  decide  whether or  not  to invest. 
  3. Investment   analysts,money managers, and stockbrokers, to make buy/sell / hold recommendations to their clients
  4. Rating agencies (such as Moody’s, Standard & Poor ’s, and Dun & Brad- street), to assign credit rating. 
  5. Major  customers  and  suppliers,  to  evaluate  the  financial  strength  and staying power of the company as a dependable resource for their business. 
  6. Labor unions, to gauge how much of  a pay increase a company is able to af ford in upcoming labor negotiations. 
  7. Boards of directors, to rev iew the performance of management
  8. Management, to assess its own performance.
  9. Corporate raiders, to seek hidden value in companies with underpr iced stock. 
  10. Competitors, to benchmark their own financial results.
  11. Potential  competitors,  to  assess  how  profitable  it  may be to enter  an industr y.
  12. Government agencies responsible for tax ing, regulating, or investigating the company.
  13. Politicians, lobbyists, issue groups, consumer advocates, env ironmental- ists, think tanks, foundations, media reporters, and others who are sup- porting or opposing  any particular  public  issue  the  companys  actions af fect.
  14. Actual or potential joint venture partners, franchisors or franchisees, and other business interests who need to know about the company and its fi- nancial situation.

This brief list shows how many people and institutions use financial statements for a large var iety of business purposes and suggests how essential the ability to understand and analyze financial statements is to success in the business world.

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