Importance of Financial Statements in Company Growth

Oct 13, 2025 by vinooalluri.com 141 views

Importance of Financial Statements in Company Growth

In today's fast-paced business environment, companies are constantly striving to achieve sustainable profits and strengthen their growth. One of the key factors that contribute to this goal is the production of goods and services. However, the success of a company is not solely dependent on its ability to produce goods and services, but also on its ability to manage its finances effectively. Financial statements play a crucial role in this process, providing a comprehensive picture of a company's financial conditions in a certain period. As stated by Lubis (2015: 02), financial statements are essential in understanding a company's financial development, and in-depth analysis of financial statements such as balance sheets, income statements, statements of changes in equity, cash flow statements, and financial statements records are very important.

The results of this financial statement analysis are not only useful for internal parties such as shareholders, management, and employees, but are also important for external parties, such as creditors, investors, and the government. Internal parties, especially managers, utilize the results of the analysis to account for the decisions taken while managing the company to the shareholders. Meanwhile, external parties need this information to assess the financial condition and performance of the company. Understanding the financial health of a company is crucial in making informed decisions related to investment, loans, and cooperation.

Company Liquidity: Definition and Its Importance

Liquidity is the company's ability to fulfill its short-term obligations. To assess liquidity, ratios are usually used such as the current ratio and quick ratio. These ratios help stakeholders to evaluate how well the company can pay debts that are due without having to sell fixed assets. Liquidity is a critical aspect of a company's financial health, as it determines the company's ability to meet its short-term obligations. A company with high liquidity is better equipped to handle unexpected expenses or changes in cash flow.

By analyzing the liquidity of PT PP London Sumatra Indonesia Tbk and PT Dharma Satya Nusantara Tbk during the 2014-2016 period, we can see the comparison of the ability of the two companies in maintaining their liquidity. For example, if one company shows a higher current ratio than the other, this indicates that the company is in a better position to meet its short-term obligations. A higher current ratio is a sign of better liquidity, indicating that the company has sufficient liquid assets to meet its short-term obligations.

Liquidity Comparative Analysis

PT PP London Sumatra Indonesia Tbk

During the 2014-2016 period, PT PP London Sumatra Indonesia Tbk showed fluctuations in the liquidity ratio. The consistent current ratio (current ratio) above 1 indicates that the company is able to fulfill its short-term obligations. In an in-depth analysis, it is known that the company's current assets increased thanks to significant sales increases, which in turn strengthened its liquidity position. The company's ability to increase its current assets through sales increases is a positive sign of its liquidity management.

PT Dharma Satya Nusantara Tbk

On the other hand, PT Dharma Satya Nusantara Tbk also shows good liquidity performance, although not as strong as PT PP London Sumatra. The company's current ratio is under 1 in several years, which can indicate challenges in fulfilling short-term obligations. However, improvements in cash flow and debt management can help this company to improve their liquidity position in the coming years. Improving cash flow and debt management are crucial steps in enhancing liquidity.

Conclusion

Comparative analysis of liquidity between PT PP London Sumatra Indonesia Tbk and PT Dharma Satya Nusantara Tbk for the 2014-2016 period shows that the two companies have a different approach to liquidity management. PT PP London Sumatra shows a better performance in maintaining its liquidity, while PT Dharma Satya Nusantara has challenges that must be overcome to improve its liquidity ratio. This information is very important for stakeholders in making decisions related to investment, loans, and cooperation with the two companies. Thus, the analysis of financial statements functions as a guide in understanding financial health and the ability of the two companies in carrying out its operations efficiently. Understanding the liquidity of a company is crucial in making informed decisions related to investment, loans, and cooperation.

Recommendations

Based on the analysis, the following recommendations can be made:

PT Dharma Satya Nusantara Tbk should focus on improving its cash flow and debt management to enhance its liquidity position.
PT PP London Sumatra Indonesia Tbk should continue to maintain its liquidity management strategy to ensure its ability to meet short-term obligations.
Stakeholders should consider the liquidity of a company when making decisions related to investment, loans, and cooperation.

By following these recommendations, companies can improve their liquidity position and make informed decisions related to investment, loans, and cooperation.

Q: What is liquidity and why is it important for a company?

A: Liquidity refers to a company's ability to meet its short-term obligations. It is a critical aspect of a company's financial health, as it determines the company's ability to handle unexpected expenses or changes in cash flow. A company with high liquidity is better equipped to handle these situations.

Q: What are the key ratios used to assess liquidity?

A: The key ratios used to assess liquidity are the current ratio and quick ratio. The current ratio is calculated by dividing the company's current assets by its current liabilities, while the quick ratio is calculated by dividing the company's liquid assets (such as cash and accounts receivable) by its current liabilities.

Q: What is the significance of the current ratio in assessing liquidity?

A: The current ratio is a sign of a company's ability to meet its short-term obligations. A current ratio above 1 indicates that the company has sufficient liquid assets to meet its short-term obligations, while a current ratio below 1 indicates that the company may have difficulty meeting its short-term obligations.

Q: How did PT PP London Sumatra Indonesia Tbk perform in terms of liquidity during the 2014-2016 period?

A: PT PP London Sumatra Indonesia Tbk showed fluctuations in the liquidity ratio during the 2014-2016 period. However, the company's consistent current ratio above 1 indicates that it was able to fulfill its short-term obligations.

Q: How did PT Dharma Satya Nusantara Tbk perform in terms of liquidity during the 2014-2016 period?

A: PT Dharma Satya Nusantara Tbk showed good liquidity performance during the 2014-2016 period. However, the company's current ratio was under 1 in several years, which can indicate challenges in fulfilling short-term obligations.

Q: What are the implications of the liquidity analysis for stakeholders?

A: The liquidity analysis provides stakeholders with valuable information about the companies' ability to meet their short-term obligations. This information is crucial in making informed decisions related to investment, loans, and cooperation.

Q: What are the recommendations for PT Dharma Satya Nusantara Tbk to improve its liquidity position?

A: PT Dharma Satya Nusantara Tbk should focus on improving its cash flow and debt management to enhance its liquidity position.

Q: What are the recommendations for PT PP London Sumatra Indonesia Tbk to maintain its liquidity management strategy?

A: PT PP London Sumatra Indonesia Tbk should continue to maintain its liquidity management strategy to ensure its ability to meet short-term obligations.

Q: What are the key takeaways from the liquidity analysis?

A: The key takeaways from the liquidity analysis are:

PT PP London Sumatra Indonesia Tbk showed a better performance in maintaining its liquidity.
PT Dharma Satya Nusantara Tbk has challenges that must be overcome to improve its liquidity ratio.
The liquidity analysis provides stakeholders with valuable information about the companies' ability to meet their short-term obligations.

By understanding the liquidity of a company, stakeholders can make informed decisions related to investment, loans, and cooperation.