Financial Report and Its Relevance to Investment Decision

Topics: Financial statements, Balance sheet, Sampling Pages: 4 (1245 words) Published: March 18, 2012
Financial reporting is the process of recording, evaluating and communicating financial information where as investment involved the allocation of resources to investment proposal whose benefit can be derived in future. Shareholders and investors are concerned with value of their investment and any income they expect to drive from shareholdings. Financial reports give them an account of how directors have handled resources given to them. The company Act specify directors’ emoluments, personal interest in contracts showing shareholders what personal benefits directors have derived from the business. Shareholders may exercise their voting rights on what is shown in the accounts especially when they vote for the appointment of directors. They also may decide to increase, reduce or maintain their shareholdings. Long term investors who have committed or may be prepared to commits funds to the companies by the way of debentures or other loan stocks, and providers of short term secured and unsecured and finance, may be interested on the financial report of a company in order to enable assess the solvency of a company i.e (ability to meet liabilities when fall due). May also need financial report to have a thorough understanding of the company’s performance and its profitability. Therefore the company to be used as a case study will have some branches and channel of communicating. Finally reports started from branches and then upward in a hierarchical order to the headquarters, where all reports collected are consolidated into a single balance sheet according to the accounting policies adopted and finally communicated to interested parties through magazine after being certified by external auditors. For this reason financial reports are expected to be qualitative, Simple and relevant. Finally, financial information of an organization is contained in financial statement. The financial statement is needed to predict, compare and evaluate the companies...
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