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:
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INVESTORS: PURPOSES/OBJECTIVES OF READING FINANCIAL STATEMENTS? |
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Assess the stewardship of management on the use of the economic resources controlled by the enterprise. |
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Assess the stewardship of management as a basis for assessing past and anticipated performance. |
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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. |
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Assess how future cash flows will be distributed, its ability to raise further finance and its requirement for future finance. |
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Assess the business liquidity and solvency to meet its financial commitments as they fall due. |
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Assess its risk profile and risk management approach. |
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Evaluate its current performance, financial adaptability and its ability to generate cash in future. |
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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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