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Financial reporting and financial statement analysis are two very important terminologies in finance. The two terms describe how a company’s financial performance is made known to persons outside the company and how this performance is assessed and used to make economic decisions.
The Role of Financial Reporting
Financial reporting provides information on a company’s performance, its financial position, as well as changes in its financial position. It usually takes the form of interim financial statements, audited financial statements, management discussion and analysis, and additional disclosures as required by the company’s regulators.
The Role of Financial Statement Analysis
In financial statement analysis, a company’s financial reports and other related pieces of information, such as financial notes and supplementary schedules, are assessed and used to evaluate the company’s performance and financial position in order to make an investment or other economic decision.
Financial statement analysis can be used to determine if a company is profitable, adequately capitalized, able to meet its long and short-term obligations, and able to generate positive cash flows on a continuous basis. It also allows analysts to project estimates or expectations of a company’s future performance and financial position.
Question
Which of the following best describes the role of financial statement analysis?
- To determine whether a company should close its operations.
- To provide information on a company’s financial performance and position.
- To use a company’s financial reports to evaluate its past, future, and potential performance.
Solution
The correct answer is C.
In financial statement analysis, a company’s financial reports are used to evaluate its past, future, and potential performance.
A is incorrect because financial statement analysis does not only provide information on wether a business should close its operations, but also how profitable it is, its financial ratios, etc.
B is incorrect because it describes the role of financial reporting and not financial statement analysis.
Sergio Torrico
2021-07-23
Excelente para el FRM 2
Escribo esta revisión en español para los hispanohablantes, soy de Bolivia, y utilicé
AnalystPrep para dudas y consultas sobre mi preparación para el FRM nivel 2 (lo tomé una sola vez y aprobé muy bien), siempre tuve un soporte claro, directo y rápido, el material sale rápido cuando hay cambios en el temario de GARP, y los ejercicios y exámenes son muy útiles para practicar.
diana
2021-07-17
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Kriti Dhawan
2021-07-16
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2021-06-28
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2021-06-22
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2021-05-10
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2021-03-24
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2021-03-18
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