FIN 010 Lecture Notes - Lecture 2: Precautionary Statement, Financial Statement, Uncorrelated Random Variables
Document Summary
Financial statements still have to be interpreted within the overall context. External forces impact an organization every day as we have already noted. This means analyzes and decisions need to take into account what happens to external factors such as economic growth, interest rates, inflation, consumer sentiment, globalization, competition, and so on. This takes us to a cautionary note: Financial managers, investors and borrowers who rely on financial statements to make decisions on where to take the business or how to provide funding need to realize that the statements, while crucial, are"" backward-looking" Recent patterns are clearly significant, but the recent history and the future is uncertain. Therefore, the decision-making process has to factor in"" forward-looking"" hypotheses about what could happen to be truly successful. When an organization has calculated the potential return and risk of a particular project or investment, the same approach may be extended to any those that it may consider.
