Who they are and why they need information?
No business can operate on its own. In almost every business activity, organizations have to interact with people and we also know that every activity involves decision making.
And to decide people need information. Every person requires different sorts of information depending on decision he is taking. But here we are not discussing all kinds of information that users might demand or require instead we are focusing only on financial information.
Financial information simply means any information related to money.
In order to understand their information needs we can classify these users of financial information into groups.
Owners are the ones at first place because of whom a certain organization exists. They invest their personal resources to create an organization. They need to know whether organization is on the right track and whether the purpose of organization is being fulfilled or not. They take interest in the financial performance and financial position of the company through which they can understand how efficiently and effectively their funds are being utilized. In some organizations owners are the ones who also run the business and take active part in making business decisions. However, in certain organizations, the role of managing the business is delegated to another person or group of person named as managers.
Managers are such personnel on whom owners pose trust and delegate majority of their powers regarding running and managing the operations of the organization and its business. Usually the owners are also the managers. As they are duty bound to manage the business in such a way that not only profits are maximized but also to ensure that the investment made by the owners is also secured. As they are solely responsible for the performance and status of the company they require information whether organization’s assets are in good shape to support the cause and objective of the organization. They also require information to decide about the liabilities and how they will be paid out and when they fall due. They are also under the duty to keep the expenses and income of the business at such level that organization can sustain and grow.
Creditors play important role in the life of organization as they provide goods and services on credit basis i.e. without demanding immediate payment for the goods and / or services provided. To decide about granting this credit facility and to evaluate the expectation whether the money receivable will be paid back or not they take interest in the financial position of the business and the level of its liabilities towards others. If organization’s financial position shows that it will be really difficult for the organization to fulfill the liabilities on time then they should not be granting credit to the organization and should insist for the business on cash basis.
Customers: As organizations buy goods and services from its suppliers, the same way the people to whom organization supply goods and services are called customers. Customers depend on organizations for the goods and services they are buying. And as their businesses depend on the goods and services they are buying, they are interested in financial information to see whether they will have the interrupted supply of goods and services. They never want to depend on such company which cannot ensure proper and uninterrupted supply as agreed due to bad financial position and performance.
Lenders lend money to the business. They range from banks, government to general public. Whenever, money is lent by the organization, it is agreed that by what date the amount should be returned and how much will be the amount. As lenders understand the risk of lending money, they never want to give their hard earned money to the wrong hands. For this they are interested whether organization holds enough assets that it can pay back all the liabilities on time and whether the managers are running the organization in a profitable way or not. Sometimes, due to the risks involved, lenders ask for additional conditions like organizations cannot take more loans until the amount is returned. These conditions can extend to serious influence of lenders on the organization’s financial policies and decisions.
Employees depends on the employers heavily and they measure their own economic status based on the financial position of the organization in which they are working. As their lives are dependant every person wants to be a part of such organization that is financially sound as it gives more job security. Every insolvent organization leaves hundreds and thousands of workers unemployed. That is why they are interested mostly in the profitability of the business as profitable business can ensure their growth and promotions. More profits mean more salaries and better life style.
Investors always like to grow their wealth and want to invest in such organizations where their investment is not only secure but also promise reasonable returns on investments. To decide which organization is worthy of their investment they need information about the existing assets of the business and its operations. They take deep interest in what organizations are producing and the market it is targeting and how many customers it has. They like to know how the management will spend their investment and how much profit will be shared with them afterwards.
Government need information about the purpose of the organization and whether the intended objectives and operations of the business are according to legal and ethical rules and regulations. However, mostly they require financial information about the organizations for tax purposes. They require information about the profits earned by the business during a specific period of time and whether the profits have been calculated properly and correctly for computing tax liability. This is one of the many important reasons why organizations prepare financial statements.
Competitors mean other rival organizations operating under the same industrial segment. Usually they include such organizations which are selling the same product or service. In order to measure their own performance and financial position they need information of other organizations of the same size, with same operations under similar economic circumstances. It helps organizations to set objectives and targets and to discover their capabilities. The good financial position and financial performance of a certain organization also suggests healthy market and gives indications to other organizations to expand operations to such markets in which other are organizations are flourishing.