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1. If the market is efficient, then all assets are fairly priced, and studying financial statement...

1. If the market is efficient, then all assets are fairly priced, and studying financial statement of a company would not help you find stocks that are undervalued. Yet, why do most professionals still study financial statements? (4 points)

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Answer #1

If the market is efficient, then all share are fairly valued and studying the financial statements will not help in finding undervalued stock.

As the market becomes efficient, the price incorporates all the existing information of the stock. This reduces the change of arbitrage opportunity.

Inspite of this the professional studies the financial statements to find out good company. They tend to find out the company with high growth potential and which can increase shareholders wealth.

In efficient market the stock price incorporates all the information but it doesn't conclude that all stocks are good investment. Professional have to conduct various research to find the best stock and this research includes the financial statements.

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