Demonstrate an understanding of financial statement analysis Essay

Demonstrate an understanding of financial statement analysis - Essay Example For instance, if a financial statement analysis is conducted and the results indicate profitability of the company then the shareholders are assured of a company’s prospective growth hence safety of investments. In the contrary, they may decide to sell their shares where financial statement analyses indicate a downfall in profitability. This group’s interest concerns the company’s wealth situation. Their major interest is security of the money they invested in the company and the ability of the company to refund both the accrued interest as well as principle amount within the designated repayment time. The creditors are interested in financial statement analysis for purposes of establishing the short-term liquidity status of a firm. Their main interest is to ascertain a firm’s capability to repay the amount they owe on time. â€Å"They do financial statement analysis from which they are informed on whether there is need to extend the lends and ask for advanced interest charges† (Sinha & Sinha, 2009). It is for this purpose that the information gathered from the financial statements is important. The management is charged with the responsibility of ensuring a smooth running of an organisation. They are responsible in formulation of future policies and plans as well as undertaking immediate decisions. It is for this reason that they should analyse financial statements in order to measure the effectiveness of the policies and the decisions they make in the day-to-day running of a firm. â€Å"In addition, the management’s interest is to ascertain both the short-term and long-tern creditworthiness of the company, productivity, liquidity and return on investment status of the business† (Shim, & Siegel, 2007). It is the duty of every government to ensure that firms conform to tax regulations. Therefore, the government examines financial statements with an aim of determining tax submission. In addition, the government