Before reading this section I recommend to read "Output Users" for understanding of thee external users’ needs of financial information. As already discussed users of financial information have been identified using the context of “Organization as a SYSTEM (for details refer 1- Financial Statement Users)”; therefore at process level the key user identified is Management.
Management is responsible to receive input, process it and provide output. We know that both at input & output level, some users have expectations and for the same purpose input and output users are interpreting the financial statements. Thus it becomes extremely important for management to have knowledge of expectations of input & output level users and perform accordingly.
We know that at input level CREDITORS are concerned about short term solvency (liquidity) of the company, if short term liquidity is worse creditors will cease their business at credit. Similarly LENDERS are concerned about long term solvency of the company as well as interest cover. Also, at output level SHAREHOLDERS are interested in profitability and efficiency with which assets are used to generate profits.
Thus management has to use financial statement analysis to make decisions keeping in mind the input and output level users. Particularly management is interested in ratio analysis i.e.
- Short term solvency ratios
- Long term solvency ratios
- Efficiency ratios
- Profitability ratios
- Market value ratios
In short we may say that management needs for financial information is the aggregate of those of input and output level users.