Explain how each selected stakeholder may use financial statements to make decisions related to the company.
I need help with a response to two peers to a discussion post with 200 words in each response
Peer #1- Gerald,
Explain how each selected stakeholder may use financial statements to make decisions related to the company.
The two stakeholders I’ve chosen are taxing authorities and creditors.
Taxing authorities are Local, state and federal governments levy taxes. Income tax is calculated using accounting information. Good accounting records can help individuals and businesses take advantage of lawful deductions. (Miller-Nobles & Mattison, 2015)
Creditors are people or corporations that lend money. Prior to lending money, creditors will ensure the payee is able to repay the money by analyzing their financial history. The creditor takes that historical data and determines things like interest rates and loan amounts.
Describe at least one thing the stakeholder could learn from the income statement (other than net income) and one thing they could learn from the balance sheet and explain the significance of the item you choose from each statement.
In order for a creditor to protect their investment they analyze information such as the financial statement and balance sheet. The financial statement and balance sheet allow a creditor to gain insight into how a company is performing. Creditors will look for things like cash flow, other financial obligations, debt-to-income ratio, and the source of the income. This information helps paint a picture for the creditor on how and when the repayments will be made. They can also use this information to not grant a loan at all.
References
Miller-Nobles/Mattison. Horngren’s accounting: The financial chapters (7th ed.). Pearson.
Peer #2- Syed,
Financial statements are important tools for stakeholders such as present stockholders and future investors to use when making educated decisions regarding a firm. The income statement gives information on the profitability and operational efficiency of a company. Stakeholders may calculate the gross profit margin from it, which indicates the efficiency with which manufacturing costs and prices are managed. A larger gross profit margin suggests better cost control and pricing power, which makes the company more enticing to investors and stockholders.
The balance sheet, on the other hand, provides a picture of a company’s financial status, highlighting its assets, liabilities, and equity. The current ratio, determined from the balance sheet, provides insight into the company’s capacity to fulfill short-term obligations with short-term assets. A greater current ratio indicates improved short-term liquidity and the ability to meet immediate financial obligations, demonstrating the company’s stability and resilience (Miller-Nobles & Mattison, 2015).
Both statements assist stakeholders in evaluating a company’s financial health, development prospects, and general stability. These insights assist current stockholders in judging the company’s success and the worth of their own investment. Potential investors use the information to assess the company’s investment attractiveness and capacity to earn returns. Stakeholders can make well-informed decisions matched with their financial objectives and risk tolerance by studying these statements.
Resources:
Miller-Nobles/Mattison. Horngren’s accounting: The financial chapters (7th ed.). Pearson.
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