Running head: FINANCIAL STATEMENTS
I will focus on the importance of financial statements for the external stakeholders. The
internal users of financial statement are managers and there make use of accounting information
in making decisions that will help the company in achieving its goals. Besides, I will outline in
details the different tools that are available for management to analyze and evaluate the progress
of a firm. The tools used include:
Ratio analysis: is a quantitative examination of data contained in an organization's
financial statements. It is utilized to assess different parts of an organization's working
and financial execution, for example, its productivity, liquidity, benefit, and solvency.
Horizontal analysis: is a financial statement analyses system that shows changes in the
measures of comparing financial articulation items over some undefined time frame. It is
a helpful instrument to assess the trend circumstances.
Vertical analysis: it is used to demonstrate the relative sizes of the distinctive records on a
financial statement. For instance, when a vertical analysis is done on a wage articulation,
it will describe the best line sales number as 100%, and other records will appear as a
level of the aggregate sales figure.
The external financing reporting is essential especially the following stakeholders:
Investors and lenders depend on financial accounting to acquire necessary data about the
financial stability and dangers of organizations. The critical benefit of financial accounting and
the advantage the Financial Accounting Standards Board is to access information efficiently. The
standard loan specialist or financial analyst does not have to keep accessing everyday operations
of an organization. Instead, it depends on financial accounting to give accurate and promptly
similar data. Financial accounting permits outside actors to watch the productivity and estimation
of a business. A financial specialist can see which organizations have reliably performed well,
paid profits and have positive margins. A loan specialist can audit the financial records to
evaluate liquidity, income, use and general solvency.
Creditors are keen on the organization's capacity to pay commitments when they become
due. The organization's liquidity particularly inspires them in its ability to pay the short-term
loan. Terms of credit are set by lenders as indicated by the appraisal...