What is the purpose of financial information?

Answer 1

Financial information is very important to the board of directors and to investors. In fact, if a company is on the stock exchange the financial records must be made public and be provided to the board of directors. Financial information basically tells the public how well or how poorly they have been doing over the year. An accountant can take information provided on the financial statements and determine things like rate of return, how much of the sales are going to cost of goods sold, and inventory turn over. Someone can even tell if a company is able to pay their bills or not. Did you know that a company can have a net income and still not pay their bills? You can find that out by looking at the Statement of Cash Flows. This is because a company have had a lot of sales but was tied up in accounts receivable or in unexpected expenses. Also financial statement shows trends from year to year. A large increase in plant assets and in cost of goods sold could indicate company growth. This will be a time when people many consider investing in a company. Also, financial statements are presented when a company turns to a bank for loans. The bank wants to see how the company is doing and what the money will be used for.