Users of financial information
/Who are the Users of Financial Information?
There are many possible users of the financial information generated by a business. The following list presents the more likely users. In short, a large group of individuals and organizations need access to an organization’s financial information, which is why the accounting standards require the presentation of a rich set of information, both within a firm’s financial statements and the accompanying disclosures.
Customers
Major prospective customers will want to review a firm’s financial information to see if it is stable enough to be a long-term supplier, or if the firm has the financial resources to complete a major project on their behalf. They will look at a variety of ratios that are devised from the financial statements in order to determine a firm’s level of credit risk.
Employees
Employees want to review the information in order to make decisions about whether the company is a stable employer. Providing this information to them can increase their level of interest and participation in the business.
Governments
The government jurisdictions in which a company does business may request the information in order to determine whether the firm paid the required amount of taxes.
Investment Analysts
A public company may be followed by a group of investment analysts. If so, these analysts need the firm’s financial information as part of their examination of whether the organization would be a good investment for their clients. This information is supplemented by on-site visits and industry analyses to make recommendations.
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Investors
Investors want to examine the information to make decisions about whether the business will continue to grow and perform well enough to justify their investment decision, or whether they should sell off their investment to a third party. They will delve into all aspects of the financials, as well as the supporting disclosures, to make their decisions.
Lenders and Creditors
Lenders and creditors will require the information as part of their decisions about whether to extend credit to the business, and in what amounts. They will continue to have an interest in the information over time, in order to decide whether their loaned funds are at risk. They are interested in the comparative levels of debt and equity being reported, as well as a variety of ratios that are derived from the financial statements.
Management Team
The managers of the reporting entity need financial information in order to make operational and financial decisions about how to enhance the financial results, financial position, and cash flows of the organization. They are most interested in finding high-level items in the financials and then drilling down into the supporting details to find additional information.
Rating Agencies
A rating agency needs to closely examine a firm’s accounting information in order to derive a credit rating for the firm as a whole or its various security issuances. They are especially interested in how conservatively the organization’s finances have been structured.
Unions
Any labor unions representing a company’s employees want to see the firm’s financial information in order to set a bargaining position that they believe the company can afford to pay. They will have a strong interest in the firm’s reported profits, cash balance, and cash flows.