Financial Statements Analysis Response

Financial Statements Analysis Response

Initial Response

Financial statements include income statements, statements of financial position, and cash flow statements. Most investors use them to help them decide on the nature of investment they are willing to select among the many options available in the enterprise. The investor uses them to gauge the company profitability during the current financial period, previous period, or in comparison with other firms in the industry (Asare, & Wright, 2012). For example, the income statement will give the idea of the company’s profits after-tax or net profit over a particular period. This will be vital to show earnings per share. The investor also uses the balance sheet or statement of financial position to know the business liquidity position. This helps them to know how much the company assets or activities are financed with debts. Thus the investor knows the company’s stability and potential to meet its financial obligations.

Part 2 Response to Jessica

Good Morning Jessica. Financial statements analysis indeed helps investors to decide the stock they are going to purchase in a company since they help in predicting the possible outcomes. Also, I agree with you that some of the financial statements used by investors are the income statement, cash flow statement, and balance sheet. Moreover, your observation that the balance sheet helps to understand company’s debt obligations while the income statement shows the profit made by the company over time is true. Therefore, income statements and balance sheets can help the investor to know the prevailing stock prices of the company after computation of certain ratios. This will influence investor to decide where to invest in the business.

References

Asare, S. K., & Wright, A. M. (2012). Investors’, auditors’, and lenders’ understanding of the message conveyed by the standard audit report on the financial statements. Accounting Horizons, 26(2), 193-217.

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