Financial Statements: Introduction, by David

Financial Statements: Introduction, by David Harper (2009), there are objectives, definitions, tools, and techniques that are all addressed, as well as assets, liabilities, cash flow, and pension plans. It is very important to understand all of the issues that surround financial statements, too, because analyzing them will not work without a clear understanding of what is being looked at and how it all goes together. The advantages of studying and analyzing financial statements are also talked about, because not everyone realizes how beneficial this can be and how important it is to do it correctly.

I agree with the viewpoint of the author, and I am not the only person who appears to feel that way. A similar article on the Accounting for Management Web site is similar in nature in that it indicates the significance of paying attention to financial statements and actually understanding what they are saying so that investments can be made wisely (Financial, 2009). If one does not know what the financial information means, one cannot make a rational decision as to whether that information is good or bad when it comes to investing.

Harper's (2009) article is divided into sections and each of those sections addresses a specific issue. That is very important, since trying to learn about everything all at once can be very confusing and can lead to a decision that is not the best for the investor or for anyone who is studying the financial statements of a company for any reason at all. That is worth noting and paying attention to, because not all financial statement articles -- especially those that talk about analysis -- are broken up into sections that are easily digestible and that make enough sense to be accessible to everyone who reads them.

It would be impossible for Harper's (2009) article to discuss everything related to the analysis of financial statements because there is simply too much to put into one article, but that does not mean that a lot of information cannot be put into there so that people who have even the most basic understanding of financial statements can move forward, learn more, and make good decisions about investing and other issues. Investing is not the only reason that people have when they look at financial statements and try to analyze what those particular statements have to say. There are many other reasons that can cause a person to analyze financial statements. However, investing is the most common.

It is important to know how well a company is actually doing before one invests in it, and if a person does not understand what the terms on a financial statement mean, he or she will be at a loss as to what is good, bad, acceptable, or questionable. It is very possible to miss a red flag in a financial statement if there is a lack of understanding about it, and Harper (2009) is quick to point that out. Harper (2009) also mentions that it is very necessary to dig deep into the financial statements of the company in order to uncover anything that might be hidden, even if the company was not deliberately trying to hide it from investors and others.

I agree with Harper (2009) on this, as well. Just scratching the surface of the financial statements will not help a person who is trying to invest in a company, because, as is often said, the devil is in the details. Something can look incredibly good on the first page and simply be terrible as one digs deeper into it. There might also be issues that a company has and that do not appear on the financial statements, but that is a risk that a lot of investors are willing to take if the financials look strong enough. Without being clear on how to examine the financial statements -- as well as what really matters to an investor and what does not -- it is possible to end up losing a great deal of money.

Knowing how to analyze financial statements does not guarantee investing success, though, and that is something that Harper (2009) could have stressed more clearly in the article. There are many people who write financial articles, and while they say that things are not guaranteed, they generally downplay that. People can lose money that way, even if they think that their knowledge will protect them. To his credit, though, Harper (2009) does say in his conclusion "Keep in mind the limitations of financial statements: they are backward-looking by definition, and you almost never want to dwell on a single statistic or metric."

He goes on to make a very important point:

" & #8230;U.S. accounting rules are always in flux. At any given time, the Financial Accounting Standards Board (FASB) is working on several accounting projects. You can see the status of the projects at their website. But even as rules change and tighten in their application, companies will continue to have plenty of choices in their accounting. So, if there is a single point to this tutorial, it is that you should not accept a single number, such as basic or diluted earnings per share (EPS), without looking "under the hood" at its constituent elements." (Harper, 2009).