Financial statements are formal records that provide stakeholders with detailed insights into a company's financial performance and business activities. The critical financial statements used for decision-making include the balance sheet, income statement, and cash flow statement.
For instance, Alex, the finance manager of Horizon Electronics, can use financial statements to approach potential lenders for funding, which could be used to open new stores or upgrade existing ones. These statements also help Alex assess the company's annual profits and calculate its tax liabilities.
Furthermore, Alex can decide whether to distribute profits as dividends to shareholders or reinvest them for business expansion. By sharing financial statements with potential investors, Alex can increase transparency, encourage investors to buy shares and support Horizon Electronics' growth.
Financial statements enable Alex to make informed decisions that drive the company's long-term success and financial stability.
