Do financial statements help in Financial decisions and corporate valuation

DO FINANCIAL STATEMENTS HELP IN FINANCIAL

DECISIONS AND CORPORATE VALUATIONS

Apparently, the first figures on a balance sheet that appeals to any ‘real world’ probable investor would be the liabilities and stockholders’ equity, and assets. The liabilities would reveal payables. For example, account payables on wages and taxes. While the assets reveal cash positions and account receivable. However, the academic or scholastic treatment of assets is quite different from the real world. This is because in the real world, accounts receivable listed under assets that are delinquent for a certain period of time is definitely not reliable as a source to cover accounts payable. In other words, a financial statement that does not reveal any cash positions but only accounts receivable, delinquent at that, under assets, reveals that the company is using the employees’ money to keep the company above water, which is a dishonest management work. Or, simply, the company is broke and should liquidate what is left to pay the liabilities, and then, fold (Kiyosaki and Lechter, 2002).

Nevertheless, some managers would speculate that when the cash position on financial statement reveals a zero figure, the company may only be on short term credit problem. This is because some managers gamble company survival over accounts receivable. While waiting, the company may be sustained by the cash kept for wages and taxes. But, some very rich people would consider these ideas as either lack of correct financial education or just clear and simple sign of being a consistent lawbreaker.