Question

In a financial statement which two lines would be of concerned to the investors?

Answer 1

This is subjective but investors usually will start with the income statement. The income statement will give the idea of what is the revenue earned, the cost incurred, and the net profit earned. Usually trend analysis is done on the income statement to assess the profitability of the business.

Investor should look out for red flag in the income statemet such as selling to a sister company with immediate plans to cancel the sale, recording sales that are incomplete, recongnizing consignment as completed sales, inventory manipulation, shifting current expensse to future periods to boost current earnings, etc.