The Importance of Company Financial Statements

The Importance of Company Financial Statements

Making company financial reports is something that must be done by those who are engaged in the business world. All businesses that want to be managed properly, must have a record containing information about all their financial activities.

Not only large-scale companies that have an obligation to make company financial statements. Because, even small companies are actually encouraged to make their company's financial statements. Because basically the financial reports that are made will later be useful for themselves.

The company's financial statements are defined as a collection of reports that provide information about the company's financial activities. Where in the report is presented some information regarding the income statement, capital ownership report, cash flow statement, balance sheet and also notes regarding the financial statements.

From this definition, it can be concluded that in essence, the company's financial statements are a description of a series of financial activities that take place in a company. Where each activity that occurs is recorded based on financial statement posts in accordance with the type of activity.

Furthermore, from the various recordings of these activities, a summary is made using the appropriate method which is expressed in units of monetary value. From the summary results, an interpretation of the results of the financial statements is then made with various objectives.

From the information presented in the financial statements, we can find out information and an overview of the financial condition of a company. Also, we can get information about the results of a company's operations in a period and the company's financial turnover in a certain period.

The purpose of making the company's financial statements is as a form of responsibility from company managers to company owners. The owner of this company can be categorized as an individual or also as a group that is in a group of owners of capital or shares. With this report, the owners of capital can finally get information on the performance that has been done by the managers of the company.

the reason why it is so important to make financial statements

Purpose of the Company's Financial Statements

Basically, every activity carried out in a company has its own purpose. Similarly, in the process of making the company's financial statements, it has several objectives. These goals include the purpose of leaving the company and the most important is the goal into the company itself.

For the purpose of entering the company, this financial report will have benefits for the management and all employees in the company. Meanwhile, for the purpose of leaving the company, it is intended for outside parties who have an interest and have the right to obtain the financial statements. These outside parties include shareholders, securities owners or creditors or banks.

In general, the company's financial statements are a medium of financial information for a company. Both for financial information that is prepared under special conditions or also for reports that are prepared at certain times on a regular basis. For reports that are prepared under these special conditions, the preparation can be done suddenly according to the needs of the company.

From the description above, a conclusion can be drawn that in general the company's financial statements function as a medium of information. Especially in informing about the financial condition of a company so that it is known by interested parties and has the right to do so.If described, there are seven objectives of preparing the company's financial statements. The seven benefits of the company's financial statements are:

  1. As a medium of information on the type and amount of assets owned by the company in a period.
  2. Informing the type and level of income that can be achieved by the company in a certain period.
  3. Shows the company's debt and capital position along with details of the types owned by the company in a certain period.
  4. Shows the amount of expenses that the company is obliged to pay in a certain period.
  5. Indicates if there is a change in the assets and liabilities and capital owned by the company.
  6. As a medium to find out the performance that has been done by the company for a certain period of time.
  7. Shows information if there is a record in the company's financial statements.     

Parties Who Need Financial Statements

In general, there are two parties who need the company's financial statements, namely from the company's internal parties and from the company's external parties. For internal parties of the company, the company's financial statements are needed, for example, company owners, management and company leaders. Meanwhile, parties from outside the company who have an interest in the company's financial statements include investors, creditors and the government.

For company owners, these financial reports are needed so that they can get information about the performance of the company's management in managing their company. Thus, company owners can have a tool to assess the performance of their employees and get an idea of ​​how the company will develop in the future. But more importantly, with this financial report, the owner of the company can estimate the amount of profit that will be obtained in a certain period. In addition, for companies that are already listed on the stock exchange, this financial report can be used to obtain information about the development of the company's shares.

For the management of the company itself, the company's financial statements are used as the basis for making company policy directions. On the other hand, from the report, it can be seen the level of cost effectiveness incurred by the company in each of its activities. Financial reports can also be used as a performance measurement tool for each individual who already has their respective duties and authorities. And most importantly, with this company's financial statements, every employee can find out how much value they will receive for the performance they give to the company.

For investors, these financial statements are used as a medium to assess the soundness of a company. Thus they will be able to get data about the opportunities and risks they have when they invest in the company. A company that has good and healthy financial statements will certainly find it easier to get investors than a company whose financial statements are not well prepared and reflect the health of the company.

The company's financial statements are also needed by creditors as external parties to the company. Creditors are parties who will assist a company in meeting the company's capital needs with a loan system. By looking at the company's financial statements, creditors can determine how well the company is. So they can find out the level of risk for the loans they make to the company. This risk is related to the company's ability to repay loans to creditors. If the level of risk is high, where the company's ability to repay the loan is low, usually the loan application by the company will be rejected by the creditor. On the other hand, if the creditor assesses that the company has a healthy financial position and a high level of debt repayment capability, the request for additional capital will be granted.

Meanwhile, the government through the company's financial statements will be able to calculate the value of taxes that must be paid by the company. In addition, the company's financial statements will also assist the government in preparing its development plan.

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