USERS OF CORPORATE REPORTS
These are the seven users groups stated by ‘The Corporate Report 1975' in the diagram below
Equity Investor Group
The equity investor group includes existing and potential shareholders and holders of convertible securities, options or warrants, investment groups, insurance companies, bank affiliates, pension funds and endowment funds.
Their main purpose from the financial statement is to require information regarding investment in an organisation, like whether or not to invest in shares or to buy more shares, sell shares, or to decide whether or not to subscribe to new issues and reaching voting decisions in general meetings. They want to make judgement in rise or fall in share prices. What are the levels of future dividends and in rapid rise in inflation the investors want to know more about the internal cash generating processes of the companies. What is the liquidity of the company in the present and about the future reallocations of its resources for economic purposes?
The main aim of this group is to estimate the future prospects of the entity, so that the users can get dividends and can predict about their future investments in the company. They also access the ability of the company to pay dividends. The financial statement does not fully satisfy the shareholders as they don’t get full information, like about the future of the company, estimating the dividend in future and current share market price, for share prices they have to use other sources like newspaper, internet, brokers and stock exchange. But some of them can be done by analysing the balance sheet and profit and loss account which are the part of the financial statements.
Loan Investor Group
This group consist of long, medium or short term lenders of money, existing and potential holders of debentures.
The long term lender wants to access the economic stability and vulnerability of the borrower, with the risk involved. Whereas short term lenders are interested in the cash assets, cash flow in the immediate future, realisable value of asset and probable timing of repayment.
The main aim of this group is to see the net realisable value of assets, good customer clientele, efficient management, is there any risk to invest in the company, cash flows and ratios between expenses and income. For this financial statement is must for this group like balance sheet and profit and loss account.
The Employee Group
This group consists of existing, potential and past employees.
The main information for this group is about their wage negotiations, will their wages rise in near future or not, Assessment of present and future job security. What are the management intentions regarding employment levels, working conditions, pays and terms of employment. Financial statement information by managers arises from contracts that include provisions based on financial statement variables, like management incentive contracts. Managers also utilize financial statement information in many of their financing, investment, and operating decisions. A financial-statement based variable, such as the current debt-to-equity ratio or the interest coverage ratio, is frequently important in deciding how much long-term debt to rise. Employees have several motivations. They have a vested interest in the continued and profitable operations of their firm.
The main aim of this group is to analyse the financial statement. Financial statements are an important source of information about current and potential future profitability and solvency. They may also need them to monitor the viability of their pension plans.
The Analyst Adviser Group
This group consists of financial analyst journalist economist, statisticians, researchers, stockbrokers and other providers of advisory services such as credit rating agencies.
The information need is about to get good advices from analysts group, stockbroker’s advice shareholders, and trade unions advisers will advice employees and government statisticians will advice government. This group is not a separate group it is a collection of experts who advice other groups, so there is a direct relationship between the analyst adviser group and the users.
The main aim of these users is to get more detailed and sophisticated information on the organisation. The information required could be financial or non-financial, depending on the users needs. All the research is based on the historical data of financial statements; they even go back to many years to judge the performance of the organisation.
The Business Contact Group
This group consists of customers, trade creditors and suppliers and in other case of competitors, business rivals and those who are interested in merger, acquisition and amalgamation.
For trade creditors and suppliers, they want to know the ability of the customer to pay for goods and services supplied and also about the long term stability of the customer. They have to decide whether to increase or decrease the production to meet the needs of the customer.
Whereas customers need information about concerning the reliability of the business in short term and long term sense. And will they get warranty, guarantee and after sales service.
Competitors and business rivals want to know about the financial, technical and marketing structure of the other business. For merger and amalgamators they need additional information that what area possible courses of action open to management.
The main aim of this group is to know the creditworthiness of a business, all obligations should be fulfilled and about the performance of the company. For this the user has to study all financial statements to come to a right decision.
The Government
This group consists of central, local government department and agencies.
Their main aim is to collect tax, decision making, to estimate the effect of existing and proposed levies, to estimate economic trends, to promote economic efficiency. For all these the government want the information to be detailed and to get within the normal historic information which is in the published report. All this cannot be done with the help of financial statements.
The Public
The public information does not arise from a direct financial or human relationship but from the general role played in the society by economic entities. The members of the community would like to know about the role of economic entities as employers, cash flows, profitability and efficiency of enterprise. Much of the information of this group is non-financial. The report cannot satisfy all the imaginable information need of the public.
Conclusion
After stating all the information needs to the users, it is clear that a single set of financial statement cannot satisfy all the users. Everyone needs different information; it may be specific, detailed, non-financial or financial. The information they want should be clear, fully expressed, detailed, and relevant and not be time consuming to make decisions. A balance sheet only tells about the assets and liability of the firm but it does not disclose actual condition of the firm, whereas profit and loss account tells about the profit or loss of the firm but not the actual cash profit in our hand and cash flow is the outflow and inflow of cash it does not show any information regarding future cash flows. So a single set of financial statement cannot satisfy all the users but a set of these statements can fulfil all their needs.
Bibliography
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Alexander. David. Financial Reporting: 4th Ed. London: Thomson Business Press, 1996.
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Foster. George. Financial Statement Analysis: 2nd Ed. London: Prentice Hall, 1986.
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Atrill. Peter. Accounting And Finance For Non-Specialist: 4th Ed. Harlow: Prentice Hall, 2001.
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Alexander. David. and Britton. Anne. International Financial Reporting And Analysis. London: Thomson, 2003.
Reference
- Dunn, Philip. “Financial Performance Indicators.” 13 Nov. 2002 <http://www.accaglobal.com/publications/diplomanewsletter/728512.html>