Chapter 1: Understanding Financial Statements 11th Edition

Chapter 1: Understanding Financial Statements 11th Edi on

4 Ques ons a financial statement answers - 1. Would an investment generate a rac ve returns?

2. What is the degree of risk inherent in the investment?

3. Should exis ng investment holdings be liquidated?

4. Will cash flows be sufficient to service interest and principal payments to support the firms borrowing
needs?

1. Does the company provide a good opportunity for employment, future advancement, and employee
benefits?

2. How well does this company compete in its opera ng environment?

3. Is this a firm a good prospect as a customer?



Required Informa on in an Annual report - 1. Financial statements

2. Notes to the financial statements

3. The Auditor's report

4. a five year summary of key financial data

5. High and low stock prices

6. Management's discussion and analysis of opera ons



GAAP - Generally Accepted Accoun ng Principles



SEC - U.S. Securi es and Exchange Commission



FASB - Financial Accoun ng Standards Board - a public sector organiza on



The two authori es responsible for establishing GAAP in the united States - SEC and the FASB



SEC requires regular filing of these reports - 1. Annual Reports (10-K)

2. Quarterly Reports (10-Q)