What is the main purpose of financial statements?

The main purpose of financial statements is to provide information about a company's financial position, performance, and cash flows. This information is crucial for various stakeholders, including investors, creditors, management, and regulators, as it helps them make informed decisions regarding their associations with the company. Financial statements, consisting of the balance sheet, income statement, and cash flow statement, detail aspects such as assets, liabilities, equity, revenues, expenses, and cash movements, effectively presenting the company's financial health at a specific point in time.

While evaluating employee performance, outlining company management structure, and assessing market trends serve important functions within a business, they are not the primary objectives of financial statements. These reports focus specifically on quantifying and conveying the overall financial health and operational efficiency of the entity, which is foundational for understanding its economic viability and strategy.