Some resources brightly mention
the main users of financial statements in a nut shell. They are the investors
or owners, management of the company, lenders, trade creditors/suppliers,
government, employees, customers, and the general public. (Anonimous, 2021).
In practice, it is well-known
that the ratio of liabilities to asset in financial statements data is useful
for giving the information to the investor whether it’s good or not to buy the
company’s shares (Ross, 2021), (Elgari, n.d.). In fact, managers also become
the user of this financial statements. The use of financial statements for a
manager has 6 reasons, including for measurement of company’s impact on the
performance, budgeting determination, reducing unneeded costs, thinking on the
big picture for decision making, aligning across departments in the same
organization to verify current financial condition, and one more important
thing is driving the team works and motivation (Cote, 2020).
The reason of lenders to be the user of financial statements is to get the fundamental data related to the business risks and health (Elabed, 2018). The lending institution such as banking will usually give assessment to applying companies. Based on my own observation, there exist two different ways of lending in current economic activities. Lending objects/goods and money. People in general and Islamic based institution agree to credit goods such as cars, homes, furniture, etc. Different opinion happens between general people and muslim people on the loan of money. Muslim believe that selling money with money, or the same objects with profits is a forbidden usury. This law has a very good logical thinking for humanity and really socially beneficial to all people since the reason why this usury is forbidden explains that if money can be a commodity to sell than only can people who have big money be able buy it and it’s spread is only in the people who have more money in such a way that the economic system will be unstable. The poor will get poorer and the rich will get richer.
In the matter of trade
creditors/suppliers, they also need the financial statements to make sure that
the companies which are dealing with them can pay the credit smoothly without
any difficulty to pay. Big demands from the companies to buy products in credit
payments are not always related to the easiness of the company to pay. The
better way to see if buyers can pay or not is by looking at their financial
statements especially the how big their income is and of course the credit
ability information can be easily extracted from their liabilities to asset
ratio in the balance sheet.
A very important party of public
and private company’s financial statements is the government as the regulator
and tax collector. Controlling the financial statements, Governments should
make sure that the public and even private companies should not rely their
liabilities on to the interest based loan. In fact, every government likes to
get tax payments from the companies more likely than supervising the effect of
the financial activities in global and national trading activities done by a
lot of the company employees.
Employees also should be aware of their company’s financial statements. They should know how big the company's profit compared to the number of workers and their own salaries. Is the salary too small or proportional to their own calculation? If they feel their income is not as big as their effort is and the benefit is too low compared to the benefits the company gets, then they should communicate it to the managements and if their proposal is not accepted then they should try to find another career in other good companies or should try building their own companies. Another thing employees should be aware of it is that how much is the debt to equity ratio of the company they are working. If there are so many interest in it by looking at greater than a third then the employees also should resign no matter how close their relation with their costumer is.
The customer should be aware of
the financial statements of the companies where they buy the products.
Especially, customers should think of the price of the product / service if
it’s normal or logical or too high. Based on the financial statements, the
price of products / service can be reflected by how much the revenues the
companies generated. We can simply multiply the price with total number of sold
products to get the revenues. In other words, the price is total revenues over
the number of sold products. Moreover, similar with the previous discussion for
other parties. The debt to equity ratio of the producer should be important
consideration for the customer to buy products from them or not.
Last but not least, the general
public should be aware of the company’s financial statements data. The reason
is because of the fact that if the worst financial statements of them can’t be
changed over a long period of time then it means the regulators can’t work
properly. If they think too much interest based liabilities in the countries
then they should make general campaign to make customer stop buying their
products, to offer better working environments for the employees, to
constructively criticize the governments so that the lenders can stop interest
based loan, the creditors / suppliers can continue as long as they sell
appropriate products, and finally the company’s managements and all parties as
the users of financial statements can contribute to the local and global
economic system stability.
References
Anonimous. (2021). Users
of financial statements - accountingverse. accountingverse.com.
https://www.accountingverse.com/accounting-basics/users-of-financial-statements.html.
Ross, S. (2021, August 10). What
is a good debt ratio? Investopedia.
https://www.investopedia.com/ask/answers/021215/what-good-debt-ratio-and-what-bad-debt-ratio.asp.
Elgari, M. A. (n.d.). Equity
screening in Islamic finance. IslamicMarkets.com.
https://islamicmarkets.com/education/equity-screening-in-islamic-finance.
Cote, C. (2020, June 16). How
& why managers use financial statements: HBS Online. Business Insights
- Blog. https://online.hbs.edu/blog/post/how-managers-use-financial-statements.
Elabed, A.A. (2018, February
7). Financial Statemeng lending. Skyline University College.
University City of Sharjah. https://www.skylineuniversity.ac.ae/knowledge-update/finance/financial-statement-lending
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