Which of the following is an example of an external user of financial statements?

Investors are classified as external users of financial statements because they rely on the information presented in financial reports to make informed decisions about purchasing, holding, or selling stock in a company. Their interest lies in understanding the financial health and performance of the business, which helps them assess risk and return on their investments. Financial statements provide essential insights into aspects such as profitability, revenue trends, and overall financial stability, enabling investors to evaluate whether the company meets their investment criteria.

On the other hand, employees, management, and department heads are considered internal users. Employees may use financial statements for purposes such as assessing job security or understanding potential profit-sharing. Management utilizes the financial data to make operational decisions and strategic planning, while department heads focus on budgeting and departmental performance. Each of these groups uses financial data in a way that supports internal functions rather than making investment decisions based on the company's public financial health, which distinguishes them from external users like investors.