Question

Explain how we could make financial statement information more valid for economic decisions by addressing non-monetary assets?

Answer 1

1--A company’s financial statements provide various financial information that investors, creditors and analysts use to evaluate a company’s financial performance. Financial statements communicate past performance as well as future expectations.

2--

A company’s financial statements provide various financial information that investors, creditors and analysts use to evaluate a company’s financial performance. Much of the information presented in a financial report is required by law or by accounting standards. Financial statements are important company management as a means of communicating past successes as well as future expectations. By publishing financial statements, management can communicate with interested outside parties about its accomplishments running the company.

3---company’s financial conditions are of a major concern to investors and creditors. As capital providers, investors and creditors rely on a company’s financial conditions for both the safety and profitability of their investments. More specifically, investors and creditors need to know where their money went and where it is now. The financial statement of balance sheet addresses such issues by providing detailed information about a company’s asset investments. The balance sheet also lists a company’s outstanding debt and equity components, and so debt and equity investors can better understand their relative positions in a company’s capital mix.

4--Financial conditions shown in the balance sheet are snapshots of a company’s assets, liabilities and equity at the end of a financial reporting period.

5--company’s profits reported in the income statement are accounting income and most likely contain certain non-cash elements, providing no direct information on a company’s cash exchange during the period.

6--shareholders’ equity is especially important to equity investors because it shows the changes in various equity components, including retained earnings, during a period. The amount of shareholders’ equity is a company’s total assets minus its total liabilities, representing the company’s net worth. A steady growth in a company’s shareholders’ equity by way of increasing retained earnings, as opposed to expanding shareholder base, means the accumulation of investment returns for current equity shareholders.