Sources Of Information That Capital Providers Use For Making Investment Decisions

1589 Words7 Pages
Introduction When making an investment, investors, or capital providers, will try to make informed decisions in assessing an investment’s potential return and risk. However, according to Cascino et al (2013), there are concerns being raised about the “increasing complexity and volume of financial statement data”. Financial analysts and potential investors use various analytical techniques to make sense of a company’s financial statements to assess an investments potential. In this essay I will look at the various sources of information that capital providers use in making investment decisions, as well as, the analytical techniques used to make sense of this information. The Users of Financial Statements The financial statements presented…show more content…
Potential investors can provide capital in two broad forms - providing either equity or debt to the firm. Equity investors look to buy a firm’s shares, and in return, expect to gain dividends and an increase in share price. Equity providers are primarily concerned with information pertaining to “the amount, timing and risk of future cash flow” (Cascino et al, 2013). On the other hand, debt providers are concerned with information related to the financial stability of a firm to ensure the firm can continue it’s debt repayments. As the world has become more globalised and more technologically advanced, the availability of information has increased, but yet so has its complexity. Capital providers use wide of information sources in making their decisions. There is evidence that a company’s financial statements are the most important source of acquiring information. Graham et al (2002) found from a study of 34 financial analysts across 18 industries that the most important sources to acquire information were a company’s income statement, balance sheet and its cash flow statements. Page 3 Page 4 Table 3: Information Sources Never Income Statement _ Balance Sheet _ Cash Flow Statement _ Financial Statement – Footnotes Company Management _ Management Discussion – and Analysis Form 10-K Report _ Industry Reports _ Form 10-Q Report _ Other Analysts’ Research _ Information from other –
Open Document