Direct and Indirect Cash Flow Statements
The first step in preparing the cash flow statement involves the determination of... Read More
The primary goal of financial statement analysis is to assess a company’s past, present, and potential future performance and financial condition. This involves using the company’s financial reports, along with other relevant information, to make informed investment, credit, and other economic decisions.
Within a company, managers use financial analysis to inform their operating, investing, and financing decisions. However, they do not rely solely on financial statement analysis, as they also have access to nonpublic financial data.
However, analysts generally have a particular economic decision in mind, which may include:
- Assessing an equity investment for inclusion in a portfolio.
- Valuing a security to make an investment recommendation to others.
- Evaluating a company’s creditworthiness to decide whether to extend a loan and under what terms.
- Assigning a debt rating to a company or bond issue.
- Deciding on a venture capital or other private equity investment.
- Evaluating potential merger or acquisition candidates.
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 whether 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
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diana
2021-07-17
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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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