These statements are also utilized for assessing the cash flow prospects of the company as well with the same purpose in mind, to benefit investors and creditors. Cash flow projections are very important for decision making as cash inflows and outflows are ultimately the most important things in terms of a company’s ability to payoff investors and creditors. Without this liquidity, there would be little to pay off with (Kaplan 1995).
Furthermore, financial reporting gives information about the ownership of assets of the company and its related liabilities which allows users of the statements to assess what the company holds and how it is performing in general. It is also an indicator of the management’s performance during a fiscal year, allowing shareholders to judge whether the current crop of management and the Board of Directors is doing a good job handling their investment (Kaplan 1995). As such, the existing shareholders of the company need financial reporting to assess whether their investments are worthwhile. Prospective investors can utilize them to judge whether the company presents a better investment option compared to others in the industry and in general.