Final answer:
The most frequent users of a private company's financial statements are banks or other lenders, as well as regulatory agencies like the IRS. These entities use the statements to assess financial stability and compliance, while venture capitalists may use them to monitor their investments.
Step-by-step explanation:
The most common user of a private company's financial statements is typically a bank or other lender. Banks and lenders evaluate these documents to gauge the financial health of a company for loan approvals or credit arrangements. Regulatory agencies like the Internal Revenue Service also review financial statements for compliance and tax purposes. Competing companies might have an interest, but they usually lack access to a private firm's financial statements.
Employees may use financial statements, but they are not the primary audience. Venture capitalists, who may become major investors in a firm, place significant importance on financial statements because they closely monitor the management and strategies to ensure that the firm is well operated. For a small company looking for capital, issuing stock could be preferred as it does not carry an obligation to make fixed payments like interest on debt would, allowing more earnings to be reinvested in company growth.