All public entities must disclose annual (and quarterly) financial results to the public.
What type of information can financial data convey?
What type of information can financial data not convey?
Comment on both questions above in 2 separate paragraphs with one reference each. Do research on the Internet and show references for the information. Comments should be in your own words.
Solution
There are four types of financial statements which are published by companies to publish and record their financial information. These four statements show the summary of financial activities of the business. These statements are formed to give the information about the financial information to the investors, creditors, and shareholders of the company. The balance sheet statement yields the information regarding the number of assets, stockholders, liabilities, and equity of the firm. It gives the accounting information of the company at a particular time of the year. The income statement of the company gives information about the revenues, profits, and expenses. The retained earnings statement shows the information about the earnings retained and distributed. The cash flow statement is the statement which records and gives information about the cash inflows and cash outflows from the company. All the four statements give information to educate its investors and creditors about its financial position and worth. The financial statements happen to be the sole window for the investors and creditors to look into the financial position of the company (Mohana, 2011).
The financial statement presented by the company does not, however, serve the inherent purpose of each of the users of the financial statements. The financial statements do not contain information which instantly shows the position of the company regarding solvency, efficiency, or liquidity of the firm. The financial statements of the company may give information about the annual operations of the firm; however, these statements cannot give very insightful information if considered in isolation. For example, a profit of $500,000 after the end of one year operation for a company would not yield meaningful information if compared with the last year’s profits, or with the capital employed to earn this profit. For this purpose, the financial statements of a company are analyzed and evaluated by using various tools to get the financial information which is also meaningful (Sinha, 2012).
References
Mohana, R. P. (2011). Financial Statement Analysis and Reporting. PHI Learning Pvt. Ltd.
Sinha, G. (2012). Financial Statement Analysis. PHI Learning Pvt. Ltd.
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