Financial Reporting and Investment Decision

Financial reporting plays an important role in investment decisions.

1. Profit-seeking companies-managers for-profit company to prepare a report containing financial information for the owner of the company. In addition to the information, this report contains four financial statements: balance sheet, income statement, equity statement and cash flow statement.

2. Owners and other interested parties (users) -although prepared especially for the owner, financial reports available to the public and read by other interested parties who use them to assess the financial condition and performance of the company and the performance of its managers. Such interested parties, referred to in this text users, including potential investors, bankers, government agencies, and the company's customers and suppliers.

3. Users decision Users get information from financial reports that help assess the company's past performance, predict future performance, and controlling the operations manager. Financial statements, therefore, allows users to make better decisions. Investors, for example, using the financial statements for selecting companies in which to invest their funds; bankers use it to decide where to loan their money and what interest rate to charge.

4. The effect of the user-user decision-making affecting the financial condition and performance of the company and the economic welfare of the manager. For example, a banker can use the information contained in the financial statements to decide not to lend particular company much-needed funds. Such a decision could lead the company to struggle and may cost jobs managers and their investment of their owners. Managers need to understand the process described from two perspectives:

1. Economic consequences

Orientation 2. Users

To run a company effectively, management must be able to attract capital (funds) from the outside who use financial statements to evaluate the company's performance and financial health. Managers applying for loans from bankers, for example, which uses financial statements to determine whether to grant a loan and, if so, what interest rate to charge. Since the use of financial statements by outsiders causing economic consequences for managers and the companies they operate (for example, higher interest rates), it is important that they know how economic events (for example, business decision) affects the financial statements. Remember and understand how these events affect the financial statements referred to in this paragraph as a perspective economic consequences.

Managers are also users of the financial statements, such as when they are called upon to assess the performance and financial health of other companies. The following questions are often answered by analyzing the financial statements provided by companies.

Should we buy a company?

Should we use the company as a supplier?

Should we give credit or loan funds to the company?

Therefore, managers also need to know how to read, evaluate, and analyze financial statements. We call this perspective the orientation of the user. Anyone requiring information on financial reporting can use this article and students can use this to financial accounting tasks.
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Financial Reporting and Investment Decision
Financial Reporting and Investment Decision
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