Question

MEMO: Catelyn is an accounting graduate who just started working for Thrones Capital, a funds management company.  Gregor, one of the directors of the company asked Catelyn to help him to decide whether the firm should invest into a new science research company.

Catelyn read the science research company’s financial reports and then reported to Gregor that “based on the financial reports, the science research company should be a good investment”.

Assume Gregor has requested you, as his assistant, to write a memo to Catelyn advising her not to rely solely on financial reports when making investment decisions. Write the memo to Catelyn in the space below.

MEMO

TO: Catelyn
FROM: Gregor (director) Thrones Capital
RE: Reliance on Financial Reports in Making Investment Decisions
DATE: 2nd June 2018

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Answer 1

Dear Catelyn,

Thank you for your suggestion regarding purchase of the new company. Although the company being in a financially healthy place as reflected by the financial statements is a good sign, I would recommend you not to rely on the financial statements as a sole measure to decide whether the company would be a good investment or not. The company's good will in the market should also be considered. Further, the way the company has been managed so far as well as the operational synergies need to be considered.