Every business needs to have a financial statement. Cash flow statement, income statement and shareholders equity statement are all part of financial statement. They are vital in development of strategies that determine the success and failure of any business. The smallest digits in a balance sheet have a huge impact on any business. When assets depreciate in value the percentage has to get deducted from the revenues earned In order to make a report, businesses have to know how much the business is making. Investors and developers get to know how much the business is making by numbers such as profits before and after tax.
The tax rates of corporate are usually on the higher side. This is because the more profit a company makes, the higher the tax rate. It can come as a surprise how much a company makes after paying taxes. This is why you need the most accurate financial data to avoid depletion of your resources. Fudging of financial statements can cause imprisonment or payment of heavy fines.
To detect mistakes at an early stage, it is essential to have financial records. Investors and developers can detect any illegal activities thorough inconsistency in numbers. Reconciliation talks helps in solving financial errors. To avoid, companies need to take time and accurately check each entry for accounting errors.
Additionally, the only way a company can build trust for investors and developers is through an accurate financial record.
It is a sign that their investment is well taken care of. When balance sheets show profits it is their joy. There are large scale companies such as WorldCom and Enron that were shut down because of presenting fudged financial data. To ensure that companies present accurate financial statements, governments have put in place strict rules on compliance and accounting to avoid the temptation of reporting the wrong financial numbers. Cash from every source of the business is what pays back investors and developers. Financial data is used by investors and developers to know if there are enough funds to sustain the business and how much cash is used in purchasing of assets.
Financial data plays a vital role in improvement of payment cycles. Outgoing payment such as daily wages and salaries has to be paid. Dividends have to get paid to investors and developers as well as management of the inventory. This cannot be done if the numbers are not correct. The company needs to be aware of how much interest is paid or received to pay a loan especially if it is overdue. The only way investors and developers can know if their investment is safe and bringing in profits is by use of financial data. More importantly, there main concern is what they money was spent on and what their money is currently doing.