Which financial statement is most important to investors?
The key points favoring each of these financial statements as being the most important are:
- Income statement. The most important financial statement for the majority of users is likely to be the income statement, since it reveals the ability of a business to generate a profit.
- Balance sheet.
- Statement of cash flows.
What do investors look for in an income statement?
The primary purpose of any income statement is to report a company’s earnings to investors and managers over a specific period of time, so they can understand how the firm is performing on a core, economic basis.
What do creditors look for in financial statements?
Details such as income, existing debt obligations, expenses, salaries, profit and cash flow all factor into the overall business financial profile. Creditors use financial statements to determine if the business represents a sound credit risk, as well as its ability to repay debt as agreed.
Why do investors use financial statements?
Prospective Investors need Financial Statements to assess the viability of investing in a company. Investors may predict future dividends based on the profits disclosed in the Financial Statements. Therefore, Financial Statements provide a basis for the investment decisions of potential investors.