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.

Intro: Do Financial statements help in finacial decisons and corporate valuations

CHAPTER 1

Introduction

This section presents the overview of the study, background of the study, aims of the study, statement of the problem, significance of the study, theoretical framework of the study, hypotheses, and definition of key terms.

Background of the study

In 2002, Robert Kiyosaki and Sharon Lechter in some way predicted the current economic downturn. How did they do that? Kiyosaki and Lechter supposed that financial statements of companies reveals not only the importance of accounting and accountabilities, but also is a reflection of the moral fiber of the owner or owners. The figures according to Kiyosaki and Lechter tell the story of the disposition of whoever is in charge of the money. Apparently, the authors could have gathered a clear picture of the country’s financial statement.

At one point, by just looking at the company’s financial statement of his son and nephew Kiyosaki made an uncompromising statement, ‘your company has financial cancer . . . and I’m afraid its terminal. You boys have mismanaged what could have grown into a rich and powerful company’ (Kiyosaki and Lechter, 2002).