Aspects of the financial statements may have different relevance to investors an

Question

Aspects of the financial statements may have different relevance to investors and creditors. Which of the following types of information are consistent with the concerns of these two parties?

a) Investors: Sufficient cash to make loan payments; Creditors: Cash flows from investing activities

b) Investors: Cash flows from investing activities; Creditors: Dividends

c) Investors: Sufficient cash to make loan payments; Creditors: Stock prices

d) Investors: Dividends; Creditors: Sufficient cash to make loan payments

Explanation / Answer

The correct choice is d

Explanation : - Creditors want to know if the firm can repay a loan plus interest in accordance with specified terms. Investors and creditors need to know if the firm can generate adequate cash flows to maintain its liquidity. Financial statements are important to both groups in making that judgment. They offer valuable information that helps investors and creditors judge a company's ability to pay dividends or other distributions to owners and repay debts with interest.

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