What is the primary purpose of financial statements?

The primary purpose of financial statements is to provide a summary of a company's financial performance and position to stakeholders. This includes investors, creditors, management, and other interested parties who rely on accurate financial information to make informed decisions. Financial statements, such as the balance sheet, income statement, and cash flow statement, present key data regarding a company's profitability, financial condition, and cash flows, enabling stakeholders to assess the viability, performance, and stability of the business.

Financial statements serve as essential tools for analyzing a company’s past performance, understanding its current financial health, and making predictions about future performance. The summarized information helps stakeholders evaluate investments, assess creditworthiness, and make business decisions based on the reported financial conditions.