What is the primary reason companies prepare financial statements?

The primary reason companies prepare financial statements is to provide stakeholders with comprehensive financial information. Financial statements serve as a formal record of the financial activities and position of a business, which includes important documents such as the balance sheet, income statement, and cash flow statement. These documents are critical for stakeholders, including investors, creditors, and management, as they offer insights into the company’s performance, financial health, and future prospects.

Stakeholders rely on this information to make informed decisions, assess risks, evaluate the company's profitability, and understand its cash flow. By having access to accurate and comprehensive financial information, stakeholders can effectively analyze the financial situation of the company, aligning their expectations and actions with the realities of the business's performance. This transparency is crucial for maintaining trust and facilitating informed investment and operational decisions.