BUS601: Financial Management

Recall from our previous discussions that the purpose of financial reporting is to provide financial information that is useful to investors, lenders, and other creditors in making decisions about providing resources to the company. In this text, we have focused on the preparation of financial reports to meet the usefulness criteria identified above. However, it is important to keep in mind a fundamental deficiency of financial reporting: it is back-ward looking. That is, financial statements report on events that have already occurred. For investors and creditors, the more relevant consideration is the financial performance in the future, as this is where profits and returns will be made. While the accounting profession has always assumed that historical financial statements are useful in making predictions about the future, users understand that the financial statements are only one of many sources of information required to make well-informed decisions. In this section, we will examine some of the other types of information used by investors, as well as some of the specific disclosures that enhance the financial statements themselves.