Objective of financial statements

The main objective of financial statements is to provide useful financial information about an entity to help users make economic decisions.

Financial statements aim to:

1. Provide information on financial position

Show what the company owns (assets), owes (liabilities), and the owners’ interest (equity) at a specific date.

2. Provide information on financial performance

Explain how well the company has performed over a period through profit or loss (revenues and expenses).

3. Provide information on cash flows

Show how cash is generated and used from operating, investing, and financing activities.

4. Assist users in decision-making

Help investors, lenders, and creditors decide whether to invest, lend, or continue supporting the business.

5. Assess management stewardship

Enable users to evaluate how effectively management has used the entity’s resources.

6. Predict future performance and cash flows

Past financial results help users forecast future profitability and liquidity.