Question

Pick one of your favorite publicly traded companies and look at its financial disclosures in its 10K.  What interesting things did you learn from reviewing the company’s financial statements?  Describe the importance of financial statement disclosures?

Answer 1

What interesting things did you learn from reviewing the company’s financial statements?

Some Important points are below to know about financial statement

The financial statements used in investment analysis are the balance sheet, the income statement, and the cash flow statement with additional analysis of a company's shareholders' equity and retained earnings. Although the income statement and the balance sheet typically receive the majority of the attention from investors and analysts, it's important to include in your analysis the often overlooked cash flow statement

The numbers in a company's financial statements reflect the company's business. These numbers and the financial ratios or indicators derived from them are easier to understand if you can visualize the underlying realities of the fundamentals driving the quantitative information

Please remember that the diverse nature of business activities results in a diverse set of financial statement presentations. This is particularly true of the balance sheet; the income statement and cash flow statement are less susceptible to this phenomenon.

The lack of any appreciable standardization of financial reporting terminology complicates the understanding of many financial statement account entries. This circumstance can be confusing for the beginning investor. There's little hope that things will change on this issue in the foreseeable future, but a good financial dictionary can help considerably.

The presentation of a company's financial position, as portrayed in its financial statements, is influenced by management's estimates and judgments. In the best of circumstances, management is scrupulously honest and candid, while the outside auditors are demanding, strict and uncompromising. Whatever the case, the imprecision that can be inherently found in the accounting process means that the prudent investor should take an inquiring and skeptical approach toward financial statement analysis.

Information on the state of the economy, the industry, competitive considerations, market forces, technological change, the quality of management and the workforce are not directly reflected in a company's financial statements. Investors need to recognize that financial statement insights are but one piece, albeit an important one, of the larger investment puzzle.

Financial Ratios and indicators

Notes to Financial statements

Prudent investors should only consider investing in companies with audited financial statements, which are a requirement for all publicly-traded companies. Perhaps even before digging into a company's financials, an investor should look at the company's annual report

Included in the annual report is the auditor's report, which gives an auditor's opinion on how the accounting principles have been applied. A "clean opinion" provides you with a green light to proceed. Qualifying remarks may be benign or serious; in the case of the latter, you may not want to proceed.

Describe the importance of financial statement disclosures?

It is a mandatory part of financial statements according to IAS/IFRS

Meaning you cannot call it financial statements unless it has all the disclosures.

Financial Statements consist of

1. Income Statement or Statement of Affairs
2. Balance Sheet or Statement of Financial Position
3. Cash flow statement
4. Statement for Changes in Equity
5. Notes or Disclosures

Importance of the Financial Statement disclosures

The importance of financial reporting cannot be over emphasized. It is required by each and every stakeholder for multiple reasons & purposes. The following points highlights why financial reporting framework is important –

1. In help and organization to comply with various statues and regulatory requirements. The organizations are required to file financial statements to ROC, Government Agencies. In case of listed companies, quarterly as well as annual results are required to be filed to stock exchanges and published.
2. It facilitates statutory audit. The Statutory auditors are required to audit the financial statements of an organization to express their opinion.
3. Financial Reports forms the backbone for financial planning, analysis, benchmarking and decision making. These are used for above purposes by various stakeholders.
4. Financial reporting helps organizations to raise capital both domestic as well as overseas.
5. On the basis of financials, the public in large can analyze the performance of the organization as well as of its management.
6. For the purpose of bidding, labor contract, government supplies etc., organizations are required to furnish their financial reports & statements.