Reasons for Importance Financial Statements Company

Several times I conveyed the importance of a company to compile the company's financial statements periodically and continuously.

 Several times I conveyed the importance of a company to compile the company's financial statements periodically and continuously.

That's why I have also conveyed several stages that you need to carry out and understand in order to be able to compile financial reports as needed by the company.

The question then is what is the reason that it is so important for a company to prepare their own financial statements. Why is a company prioritized to have periodic financial reports?

It turns out that there is a big role in financial reporting on the running of the company's wheels, especially on the financial wheel. And for more details, the following is an overview of why you should prepare a financial report.

Basically the company's financial statements are a description of the company's financial condition. From there you can find information about the company's ability to generate profits. Including how the description of the economic value of the company's activities including efficiency. And in general, financial statements are a form of accountability for business wheel managers to interested parties.

There are many parties who have an interest in the responsibility of business managers. There are also parties who have an interest in financial statements to make them a benchmark for some decisions and planning. And the following are the parties with an interest in the company's financial statements and their uses.

Company internal party

  • As a form of responsibility of the manager to the owners of the company. Usually occurs when the reins of company management are handed over to a second party or not directly carried out by the company owner.
  • As a medium for evaluating the management of the previous period, seeing points of achievement and points of weakness in management, becomes an assessment of abilities, achievements and shortcomings in management.
  • As a medium for comparison of the company's financial rate from one period to another, as a starting point for the company's progress, as a reflection of the effects of a long-term policy or to see the impact of a company's macro situation.
  • As a starting point in determining corporate planning in the next period.
  • For promotional media for companies to obtain funds from third parties for business development, such as from investors or from creditors.
  • As a reference in the future period to see the policies and developments of the company in the past.
  • Sometimes macro and micro situations and conditions at one time have similarities with the situation in the previous period. Financial reports from a certain period can later be used as a reference in making decisions in the future.
  • The company's financial statements are also useful as a basis for calculating taxes

Company external parties

  • Investors have an interest in seeing the health, profitability and opportunities of the investments they make, as well as to see the ability of the company's return on capital. From reporting, investors will decide to withdraw capital or increase capital in the next period.
  • Creditors have an interest in seeing the health, liquidity and ability of the company to pay off debts as they fall due. From reporting, the creditor will make a decision to continue the loan, grant relief or even give the company bankruptcy status by taking assets.
  • Suppliers are also often interested in the company, especially if there are receivable transactions between the company and the supplier. From supplier reporting, it is possible to assess the estimated smoothness of payments from the company and assess the feasibility of the company getting terms in the next transaction.
  • The government is also interested in the company's financial statements, especially in relation to the calculation of taxes and the amount of tax paid in the period concerned. The government at a macro level will also use this period's financial reporting as a reference in determining the estimated tax value in the next period.
  • The employees who of course have an interest in knowing how healthy the company they work for and understanding the comparison of employee welfare with the condition of the company's financial development from period to period.

It turns out that there are so many uses of the company's financial statements and so many parties who have an interest in financial reporting. So now it's getting stronger and more basic, that's not why you need to make company financial statements, no matter how old your company is at this time.

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