Read the following passage and answer the question.
INA Ltd is a company that deals in manufacturing of pharmaceutical products. Raman has recently been hired as an assistant to the accountant of INA Ltd. The accountant of the firm Mr. Rajat asks Raman to go for financial statement analysis of the firm to assess the financial position of the firm. To judge the knowledge and capabilities of Raman, Mr. Rajat asked him to analyze the financial statements from the viewpoint of various parties interested in the firm eg. the management, the lenders, the investors, labour unions, government, etc.
If Raman is to analyse the financial statements for the investors, what should he consider?
Answer & explanation
Correct answer: option 4
The correct answer is option 4- Both (1) and (3).
Investors, who have invested their money in the firm’s shares, are interested about the firm’s earnings. As such, they concentrate on the analysis of the firm’s present and future profitability. They are also interested in the firm’s capital structure to ascertain its influences on firm’s earning and risk. They also evaluate the efficiency of the management and determine whether a change is needed or not. However, in some large companies, the shareholders’ interest is limited to decide whether to buy, sell or hold the shares.