Describe the financial statements’ role s in evaluating companyFord Motor Compan

Question

Describe the financial statements’ role s in evaluating companyFord Motor Company performance for the last threen years. Briefly and in general terms:

1. Assess the strengths and limitations of financial statement analysis in evaluating a company’s performance. Be sure to explain how those strengths and limitations affect your a nalysis. In other words, what can the company’s financial statements tell you about its performance and limitations, and how does that information affect interpretation of results?

2. Explain why it is important that these statements be completed accurately and ethically and what the ramifications are if they are not

Explanation / Answer

What is a financial statements

Financial statements are those statement which includes the income statement, balance sheets, statement of retained earnings and the statement of sources and uses of funds. The income statement includes the trading account and the profit & loss account of the business concern and the balance sheet includes the assets and liabilities of the business.

How Financial statement are important to various groups / stakeholders.

Financial statements are important to various stakeholders for example the following

Shareholders

This financial statements enables the shareholders to know about the performance of the management and it will give the relevant information of the effectiveness, efficiency and the current financial position of the business also.

Creditors

It tells them if company has enough liquidity to pay them also whether the company is making profits or not. By looking at the statement creditors enable them to decide if they should give further sell on credit to company or not.

Employees

P&L account, help employee in letting them know about profitability of company and if they should negotiate more about salary and other benefits with management of compnay.

Govt, or Government departments / Trade unions.

Above groups judge about the company after careful study of financial statements of company and accordingly they decide about various policies related to company and concerned industry.

As we understand now that financial statements plays such a vital role for abovementioed groups/ stakeholders. Clearly said statement has to be accrurate and non accuracy can be very harmful to the offcials involved / responsible for preparation of financial stetements.

Not limiting the importance of accuracy of financial statements we should also keep in mind that there are limitation of said statement listed below -

Limitations of Financial Statements.

The important limitations of financial statements are as follows:-

1.   In formations provided through the financial statements will be incomplete and inexact.

2.      The qualitative information may be ignored in the financial statements.

3.      Financial statements provides historical data.

4.      The financial statements are based on the accounting concepts and conventions.

5.      Personal judgments will be affected to the financial statements.

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