Importance and usefulness of financial

statements:
Management:

Financial statements are of very great help to management in understanding the

progress, position and prospects of business. Using analogy, it can be said that
financial statements serve the business management as gauges and chart serve the
engineer. In the absence of information which are include in the financial
statements, management can neither plan nor fulfill easily the functions of
operation and control.

Investors:

Financial statements are also significant for investor both present and prospective.
However, the investor looks to the financial position of business concern from a
different angel. Investor are interested in two things- firstly, they ant to invest I such
a situation where they feel the financial structure of a company is sound.

Secondly, they want to in such concern whose future is bright. Investors gives first
attention to the profits after taxes In the profit and loss account. In case of
prospective investor, financial statement serve a mirror reflecting potential
investment opportunity.

Bankers:

A bankers is primarily concerned with the ability of paying current debt and the
current operation results. He wants not only the payment of advance but also wants
that such advance should be repaid at proper time also.

Government:

central and state government and local authorities are also interested in published
financial statement in order to access their revenue through various taxes to
regulate capital issue and public utility regulation .

research scholars:

the financial analysis and research worker s are interested in published financial
statement for guiding management or for establishing certain principles. a financial
analyst can peep through these statement into the financial policies pursued by
the management and offer constructive suggestion to over come financial malady
,if diagnosed.

Trade creditors:
From the creditor point of view financial statement act as magic eye highlighting
the credit worthiness.

Public:

financial statement are also valuable to the public who are interested in prospect
of a concern ,in one way or the other .it is the securities of the enterprise alone that
are bought and sold on stock exchange and the public is interested, mostly in their
financial standing and also to avoid hostile feelings of the public.

Limitation of financial statements:

Financial statements are basically representative of a business financial
activates. These are: balance sheet, income statement, statement of
retained earnings and statements of cash flows. The nature of figures which
are reported and the way in which they are reported tend to give the
impression to the reader that financial statements are precise, exact and
final. Financial statements are not free from limitation. Following are their
limitation to investors:

 Financial statements only reveal financial position of the company in a

summarized manner. In case of balance sheet it shows the financial
position of business on a particular day usually at the end of financial
year.
 Financial statement do not record non-monetary transaction.
 Over time, conditions change and financial statement may not reflect
current market values.
 It is only the starting point of analysis, they do not show clearly the
reason behind a certain trend, the investor have to search and analyze
by themselves.
 Past financial performance does not signify what will happen whit the
investor in future.
 The financial statements are useless without the notes to the financial
statements, which are complex.
 Unless the statements are audited their authenticity is under doubt
and they may be misleading and fraudulent.
 The financial statements reflect the recorded facts and figure. Hence
these are not useful for control purpose.
 Valuation of inventories, method of depreciation, treatment of
expenditure as capital of revenue etc., are based upon personal
judgment.
 These contain some estimated amount such as provision for doubtful
debts etc.
 Balance sheet shows the differed expanses such as preliminary
expanses. These are not really assets.
 Many a times, consistency is not followed and hence the profitability is
not compereble from year to year.
 Debt equity ratio as prescribed by the controller of capital issue is not
mentioned in the financial statements.