- [Kay] The key external users
of financial accounting data are lenders and investors,
the people who provide the capital to a business
so that an entrepreneur can turn her or his dreams
into reality.
- Now lenders and investors aren't the only external users
of financial data.
For example, suppliers use a company's financial statements.
If I'm going to sell to you on credit,
then I want to know if you're going
to be able to pay me or not.
- So, if you're considering entering in
to a long-term significant supplier relationship,
where you're selling on credit to another company,
first thing you're going to do
is to get their financial statements
and do a little analysis to see
if they're going to be able to pay you back.
- [Jim] Now customers also use a company's
financial statements.
Anybody who enters into a long-term relationship
with a business wants to know if that business
is going to be around in the future.
- I remember when I lived in Houston.
There was a company that said,
we'll build your foundation for your house,
and we'll guarantee it for 50 years.
Okay, well, that's nice, but is that foundation business
going to be around for 50 years?
- Employees should also look at a company's
financial statements.
Employees have long-term relationships with companies.
Before leaving one job and taking another job
with a different company,
employees should look at the financial reports
of the new company.
- Is this a strong company?
Do they have a strong track record?
Can I count on them?
Are they going to be here in the long term?
Are they financially viable?
- Competitors also use a company's financial statements.
Do you think that Coke wants to see
the financial accounting reports of Pepsi?
Of course they do.
Do you think Walmart wants to see
the financial accounting reports of Target?
Competitors can use a company's financial statements
to see its strengths and its weaknesses.
- [Kay] Government agencies are also users
of financial accounting reports.
Banks, insurance companies, and public utilities
are regulated by the government.
As a result, companies in these industries
must provide financial accounting reports
to the relevant government agencies.
- [Jim] Politicians and their staff
also look at financial accounting reports.
For example, if I, as a politician,
want to make a political argument against,
say, high profits in the oil industries,
I pull out exhibit A, their financial reports.
- Or if I'm a politician who wants to protect,
say, the textile industry in my state,
I pull out the financial reports
of some major textile businesses in my state
to show that their profits are going down.
- [Jim] Now, news reporters also use
financial accounting reports.
A basic use is to provide simple background information.
For example, if I'm writing a story about Apple,
I use the company's financial statements
to be able to tell my readers
about the company's net income,
their assets, and the amount of income taxes they've paid.
- News reporters also use financial reports
to trigger investigations.
Let's say a company just announced
that their profits have gone down by 70%.
That financial accounting report
could trigger an investigation
by a reporter who would say,
well, now, why did their profits by 70%?
- Lots of people use external financial accounting reports.
Investors, lenders, suppliers, customers,
employees, competitors, government agencies,
politicians, and news reporters.
- And from now on, hopefully, you
will be in the set of people who are comfortable
using financial accounting reports.