Financial statements tell us about the past. They are a record of what a firm has done in the past. How can analysis of financial statements be focused on a firm’s future? How is this possible?
What are the main differences between drivers and passengers? Do you think that the financial statements are passengers and that a firm’s economic and business realities are the drivers? Why or why not?
“Financial statement analysis should focus on analysing financial statements. It should not involve assessment of vague, confusing and hard-to-pin-down qualitative factors that surround a business. We need to get to the facts, not to people’s judgements.”
Critically discuss this statement. Outline the reasons and thinking behind this statement. Then describe whether, based on your current thinking, you agree or disagree with each of the underlying reasons of this statement that you identify.
Note: It is perfectly acceptable, indeed it is expected, that you might have any of a range of views or opinions about this statement (and about many other issues in relation to financial statement analysis). We are interested in what you think and, most importantly, why.
Why do you think so few people can use a firm’s financial statements to meaningfully assess its value? What do you think are the main barriers people face? What do you think are the main barriers you face in using financial statements to engage with the realities of firms?
“Without sales, a firm is dead. It will fail without sales. Thus, there is no such thing as ‘bad’ sales growth. The only ‘bad’ sales growth is no sales growth.” Critically discuss.