Purpose of Using Financial Statements-Investor’s Viewpoint

May 21st, 2006 Comments off
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As an accountant it is important to understand the purpose/reasons for an investor to read or understand the financial statements. Below tabulates some of the purposes/objectives:

INVESTORS: PURPOSES/OBJECTIVES OF READING FINANCIAL STATEMENTS?

Assess the stewardship of management on the use of the economic resources controlled by the enterprise.

Assess the stewardship of management as a basis for assessing past and anticipated performance.

Assess the enterprise’s capacity to generate cash flows from its existing resource base and in forming judgments on the effectiveness the enterprise employed its resources and might employ additional resources.

Assess how future cash flows will be distributed, its ability to raise further finance and its requirement for future finance.

Assess the business liquidity and solvency to meet its financial commitments as they fall due.

Assess its risk profile and risk management approach.

Evaluate its current performance, financial adaptability and its ability to generate cash in future.

Provides investors information on the enterprise’s capacity to adapt to changes in the environment in which it operates – to raise new capital, repay capital or debt at short notice, mitigate the risks associated with operations.

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