What you may say about the importance of Financial Statements?

What you may say about the importance of Financial Statements?

"Every year when I look at what our company has achieved, I ask myself the question, "What about the future?" to make the strategical and the important decision financial statement plays an important role in both growth and in the market. 

For example I bought FREQ(Frequency Therapeutics)on 15 Jan 2021 trading $37.32 then later it went down 62%. but due to lack of knowledge, poor analytic strategic I couldn't bear the loss as well so I still add money in the hope in future it will increase and I will be in profit. Later stock perform so bad that now it is trading at $2.41 per share. Due to lack of knowledge I was unable to read the movements neither of the hope or greed let me to cut out with such huge loss.

 Financial Statement and its Importance

The Basic tools of  Financial Statements are:-

The Balance sheet:- We have heard this equation from our childhood, it provide us the clear, summarized details of the company.

Assets(Firm Owns) = Liabilities(Firm Owes) + Shareholder's Equity

This one is the sample of the Balance Sheet of the company FREQ Annually. which you can also find it on Yahoo Finance!!. It is very useful for many parties, for example:- A supplier might look at the size of Account payable to look how regularly the firms pays its bills, creditors would examine the liquidity and degree of financial leverage.

 

The Income Statement and Cash Flow:-

 In saying or definition we says like " if balance sheet resembles a snapshot of the firm then its income statement is like a video". It shows about the revenues, expenses and net income of the firm at a particular time. The Statement of cash flow shows the cash operations (inflow and outflow) from its investments and financing activities.

Lets talk about some importance of Financial Statement,

As do many investor suggest or make every decisions with variety of information, including data on economy, various industries, companies . The best source of information is probably the company's own financial statements which helps you to know about a company's current health, its prospects for the future so that it will make you easy to make your decision. it can used for various purposes like an analytical tool, an early warning signal and provide an economic history which comprehensive and quantitative. Fundamental statements are crucial in investment decisions that use fundamental analysis to identify mispriced securities. Fundamental analysis uses balance sheet and income statement information, along with macro and micro economic data, which helps to forecast future stock price movements. Commercial Lenders like (BANK, INSURANCE COMPANIES, AND OTHERS) uses financial Statement to take an decision regarding how much amount they can provide the loan, the interest rate and those who needs for the business loan. Financial Statement provides value by providing evidence about the quality of its management, about its ability to fulfill its obligations under supply agreements or labor contracts,or about the company business activities.

Conclusion

Financial Statement are an extremely important source of information about a company. Equity Investors use financial statements to form opinion/ make an decision about the value of the company and its stock. It is also useful for Creditors who wants to lend the money for their business expansion or for business growth. Stock analyst, Broker and Portfolio manager use financial statements as the basis for their recommendation to investors and creditors.