What is the primary purpose of financial statements?

The primary purpose of financial statements is to provide useful information to stakeholders for decision-making. These stakeholders can include investors, creditors, management, and various regulatory agencies. Financial statements summarize a company's financial performance and position over a particular period, presenting key information such as revenue, expenses, assets, and liabilities. This information enables stakeholders to evaluate the financial health of the organization, assess its profitability, and make informed decisions about investments, lending, and operational strategies.

For instance, investors rely on financial statements to determine whether to buy, hold, or sell their shares based on the company's performance. Creditors use this information to assess the likelihood of repayment. Moreover, internal management utilizes these statements to make operational and strategic decisions to improve business efficiency.

While there are other aspects of a company’s operations that can be reported on, such as employee performance or environmental impact, these are not the primary focus of financial statements. Financial statements are specifically designed to encapsulate the financial aspects of a business, primarily aimed at aiding decision-making among a wide range of stakeholders.