What is the purpose of financial statements?

The purpose of financial statements is to offer insight into a company's financial performance. These documents, which typically include the balance sheet, income statement, and cash flow statement, serve as vital tools for stakeholders—such as management, investors, analysts, and creditors—to assess the financial health and operational efficiency of the business. By analyzing these statements, stakeholders can understand aspects such as profitability, liquidity, and the overall financial condition of the company, enabling informed decision-making regarding investments, funding, and strategic planning.

The other options, while they address certain administrative or strategic functions within a business, do not align directly with the primary role of financial statements. For instance, tax deductions relate to tax laws rather than financial performance insight; maintaining employee records is part of human resource management rather than finance; and creating a marketing plan falls into strategic marketing activities unrelated to the financial status conveyed in financial statements. Thus, the focus of financial statements is inherently tied to evaluating financial results rather than these other operational tasks.