Finance essay

Shareholders and top company management need financial statements in order to make critical corporate business decisions that will have significant short-term and long-term impacts on the company’s operations. Investors then perform an in depth analysis of these financial statements to establish the company’s financial position as well as its financial performance. Quarterly corporate financial results are important because they inform shareholders and other interested parties concerning the company’s financial position and performance. Financial statements are usually consolidated and incorporated in the company’s annual report that is presented to the shareholders at the end of the financial year. A company’s published corporate results indicate the company’s financial position and performance that is of great interest to both existing and potential external investors.

Prospective investors rely on corporate financial statements so as to ascertain the viability of investing in a specific company and the risks involved. Thus Investors use financial analyses usually prepared by professional financial analysts to make pertinent investment decisions. Investors are usually regarded as the major users of financial statements. As such, they use analyze financial statements to establish the company’s profitability as well as in projecting the company’s future potentiality for growth. In fact, investors are usually more concerned with the possibility of its stock price and its capacity to pay dividends to the shareholders. Therefore corporate financial reporting should present information such as the company’s financial resources, claims to those resources, how transactions affect its performance as well as circumstances that can change claim to those resources.

1.5 The importance of accounting policies to annual report users