THE POINT OF FINANCIAL STATEMENTS

Your future will undoubtedly be
marked by numerous decisions
about investing money in the
capital stock of some
corporation. Another option
that will present itself is to loan
money to a company, either
directly, or by buying that
company's debt instruments
known as "bonds." Stocks and
bonds are two of the most
prevalent financial instruments of
the modern global economy.
The financial press and television
devote seemingly endless
coverage to headline events
pertaining to large public
corporations. Public companies
are those with securities that are
readily available for purchase/
sale through organized stock
markets. Many more companies
are private, meaning their stock
and debt is in the hands of a
narrow group of investors and
banks.
If you are contemplating an
investment in a public or private
entity, there is certain
information you will logically
seek to guide your decision
process. What types of
information will you desire?
What do you want to know
about the companies in which
you are considering an
investment? If you were to
prepare a list of questions for
the company's management,
what subjects would be
included? Whether this
challenge is posed to a
sophisticated investor or to a
new business student, the listing
almost always includes the same
basic components.
What are the corporate assets?
Where does the company
operate? What are the key
products? How much income is
being generated? Does the
company pay dividends? What is
the corporate policy on ethics
and environmental responsibility?
Many such topics are noted
within the illustrated "thought
cloud." Some of these topics are
financial in nature (noted in
blue). Other topics are of more
general interest and cannot be
communicated in strict
mathematical terms (noted in
red).
Financial accounting seeks to
directly report information for
the topics noted in blue.
Additional supplemental
disclosures frequently provide
insight about subjects such as
those noted in red. But, you
would also need to gain
additional information by
reviewing corporate web sites
(many have separate sections
devoted to their investors), filings
with the securities regulators,
financial journals and magazines,
and other such sources. Most
companies will have annual
meetings for shareholders and
host web casts every three
months (quarterly). These
events are very valuable in
allowing investors and creditors
to make informed decisions
about the company, as well as
providing a forum for direct
questioning of management.
You might even call a company
and seek "special insight" about
emerging trends and
developments. Be aware,
however, that the company will
likely not be able to respond in a
meaningful way. Securities laws
have very strict rules and
penalties that are meant to limit
selective or unique disclosures to
any one investor or group (in the
United States: Regulation Full
Disclosure/Reg. FD). It is always
amusing, but rarely helpful, to
review "message boards" where
people anonymously post their
opinions about a particular
company