Users of Financial Information
Accounting (Year 12) - Regulation of Accounting for Companies
Christian Bien
Investors and Shareholders
Investors/ Shareholders require information to assess the following: - Profitability of businesses they invest in;
How efficiently resources are used in the business;
Return of their investment compared to other investments and the value (dividends);
The risk of their investment.
Lenders
Lenders include: banks, suppliers, creditors such as debenture holders. Lenders want to asses the ability of the business to pay debts owing as and when they fall due.
They assess:
Profitability to the extent that the business has the future ability to repay debts.
Liquidity - does the business have sufficient liquid assets to pay back debts when they are due.
Risk - the level of the business's existing debt to equity financing is considered. Does the business's profitability support regular interest payment?
Employees
Employees want information to assess their job security and whether they are being paid fairly.
They assess:
Profitability - poor profitability could mean they are at risk of losing their jobs.
Liquidity - can the business meet their wages and salary obligations on time.
Financial Analysts
Investors rely rely on the advice provided by financial analysts. Analysts are employed in many different organisations such as: superannuation funds, investment banks, stockbroking firms and large companies.
Analysts have interests in a wide range of the business's information similar to investors, including: profitability, growth potential, return on investments, risk and liquidity.
Auditors
Frequent analysis of the financial reports of a business help with carrying out an effective audit.
Auditors are interested in:
Trends in sales, profits and costs.
Significant variations from regular patterns.
Compliance with accounting requirements.
Managers
Managers have access to a variety of internal financial information prepared: budgets, costing reports etc. Managers are responsible and therefore have an interest in the profitability, growth potential, level of risk, liquidity and management efficiency.