A company analyses its financial statements for mostly two reasons. One, to understand in which financial direction the company is heading, and secondly, how it can help in the growth of the company. Various users of the financial statement analysis helps in the growth of the company and takes it to the right direction. For understanding how financial business analysis helps the company to grow, let’s see how its users benefit in the growth of the company.
Potential Investors
A company is always looking for potential investors. They are the major users of the financial statement analysis. Apart from own equity, a company up to a great extend depends upon investors for finance. If the analysis of the statements shows a promising and bright future of the company, the investors immediately gets attracted to invest a handsome sum in the company. This therefore helps in the growth of the company.
Creditors
Creditors are the people who have already invested some money in the company. They help in the day-to-day working of the company by providing for working capital or raw materials. If the company’s financial analysis has negative news, they are the first ones to withdraw from the company or stop the supply of raw materials. Therefore a positive analysis helps in retaining the company’s creditors.
Owners, Proprietors, and Partners
They are interested to know about the solvency of the company. They also need to learn about the rate of return on capital employed and also about the rate of dividends among other information. This helps them to understand the direction in which the company is heading and accordingly take the decisions about divesting, or retrieving from projects, etc., such decisions helps in the growth of the company.
Current Investors, Lending Institutions and Bankers
They are the people who provide long-term investments to the company. They are always interested in knowing if the company can pay their debt or continue to give interests regularly. They also need to analyze if the company can enhance the rate of return on their investment. Negative news regarding the solvency of the company can immediately put them to withdraw their amount.
Employees
Employees are also interested in knowing the solvency of the firm as their remuneration depends on it. They often analyze the earning capacity of the company to understand their growth in the industry or about their future increment. Trade unions often help the employees to understand such detailed information and make them act accordingly. A positive new makes them stay in the company and reduces their turnover.
Conclusion
Analyzing the financial statement requires various tools and methods. One might not be well versed in understanding all the terms of the analysis. It is therefore always recommended to take the help of the experts before coming for a conclusion. A small step of any financial statement analysis user can affect the goodwill of the company and restrict its growth. One must, therefore, do a thorough reading and understanding before making a decision.
