CBSE Class 11-commerce Answered

Following are the categories of Users of Financial Statements:

1. Internal Users:

Shareholders: Shareholders are those users who provide funds or contribute capital to the company and are therefore, exposed to risks. In view of the risk involved, they are always interested in the profitability, returns, financial and cash position of the company.

Management: Management is responsible to safeguard the investment in business and increase the value of business by managing the business effectively and thereby maximising the profits. It makes use of the financial information to arrive at the informed decisions to increase the profitability of the business.

Employees: Employees work in the company for a consideration in the form of salary. In addition to the salary these employees are also entitled to various benefits in form of bonus which is directly linked to the profits of the business.

2. External Users:

Banks and Financial Institutions: These are the organisations which provide loans to the businesses and are therefore, concerned about the performance of the company to ensure that the business is able to repay the loan along with the interest due.

Investors and Potential Investors: Investors wish to know how safe their investments into a business are. The investors gain the information related to investment directly from financial reports of the business so as to judge profitability and growth status of business.

Creditors: Creditors are the suppliers who provide goods and services on credit and are therefore, concerned about the financial stability of the company to ensure that the dues are cleared on time without any delay.

Government and its Authorities: These users use the financial statements to compile national income and then further take some important policy decisions.

Securities and Exchange Board of India (SEBI): SEBI and Other agencies study the financial statements of the companies to check if the companies are operating within the prescribed limits and investor interests are being protected.