Question

Agree or Disagree and Why? There are many techniques managers use to analyze financial statements. Besides horizontal and vertical analysis where managers compare current results to past results or to a base, there are is also ratio analysis, credit ratings, and even general news articles. Reading news articles is a good way to determine how a company is viewed externally and can give managers an opportunity to address public relations issues. Credit ratings are generally a good measure of the credit worthiness of the company. Ratio analysis uses readily available statistics from financial statements to develop ratios that further describe the firm’s operations, such as profitability and turnover ratios. Earnings Per Share (EPS) is a common ratio used to determine how well a firm is performing compared to the number of shares outstanding (Jiambalvo, 2016). While there are many ways to analyze an organization, it is generally best to use as many as possible to have a well-developed understanding. (Ch 14, John Fisher)

Answer 1

Understanding of the entity and its business environment is of prime concern for the potential investors, regulators and other stakeholders. While the numbers presented in Financials depicts the entity's position for a period and/or position on the given date, the analysis of these statements provide the clear picture for the informed decision.
There are multiple methods of performing analysis which includes :

Horizontal and Vertical Analysis : Variance analysis and percentage of base are the most common analysis tools in place. While horizontal analysis provide the insight about the entity's performance in comparison to the previous year(s), on the other hand, vertical analysis depicts the performance of the entity in a particular division by comparing it to the base, which may vary (such as Sales figure, operating cost, balance sheet total).
These are among the best known intra-company analysing tools. However, they are prone to window dressing and hence one need to be careful while solely using these tools.

Ratio analysis : Analysing the liquidity position, profitability, efficiency of operations of the entity based on the reported figures provide the insight about the various aspects of the business. Further, the comparison with the peers on the basis of ratios present the company's position in the industry.
EPS, is one of the important ratio as the same is guided by the IAS 33 and is being presented by all the companies by and large. It is computed by dividing the earnings of the company with the number of shares outstanding. This ratio makes the comparison among peers more easy while reflecting the company's current earning position and prospects thoroughly.

Credit Ratings : At times, out of the regulatory requirement the entities get their financial instruments being graded by independent agencies. These agencies employ the professionals to grade the instruments issues/ to be issued by the company on the basis of information available in the public domain. However, the instances of deploying unfair means to get the rating in their favor by companies has affected the credibility to some point but they are still considered a good measure for financial analysis.

Perception In Media : For general public at large, the perspective put in by the media guide their understanding of the company and its management. Further. this creates a feeling of association or disconnection.
Management can in turn, plan and manage as to what should be presented to make sure that the company's position in public is not maligned or how can it be enhanced.
The caution here needed is as to whether the information available is just a rumor or is having any relevance with the working of the company.

There are other methods as well for analysing financial statements, which may include DuPont Analysis, Fundamental Analysis, Technical Analysis etc.

"While there are many ways to analyze an organization, it is generally best to use as many as possible to have a well-developed understanding."
This given statement is prone to subjectivity and quality of information available with the one. Though, while making any decision one should consider all the information available in hand, but the same should be checked whether the same actually reconciles with the other credible information source. If there is anonymity about the source of information the use of the same may misguide the analyst. Therefore, saying that while analysing the organization, one should use as many as possible ways is highly dependent on the understanding of the business & its environment (industry) by the user and the credibility of the information available.

Agreement with the information given in the question along with a skeptical view on the line mentioned and explained above.