Reading 29 - Financial Statement Analysis: An Introduction

Question 1

The role of financial reporting by companies is to provide information about:

Answer 1

their performance, financial position, and changes in financial position that is useful to a wide range of users in making economic decisions.

Question 2

The role of financial statement analysis is to take financial reports prepared by companies, combined with other information, to evaluate the:

Answer 2

past, current, and prospective performance and financial position of a company for the purpose of making investment, credit, and other economic decisions.

Question 3

In evaluating financial reports, analysts typically have an economic decision in mind. Examples include the following:

Answer 3

Evaluating equity portfolio investments, merger or acquisition candidate, subsidiary or operating division, venture capital or other private equity, credit worthiness, credit extension, debt covenant compliance, debt rating to company or bond issue, valuing a security for investment reccomendations, forecasting future net income and cash flow