Reference no: EM131627585

A case can be made for each of the financial statements being the most important, though the ultimate answer depends on the needs of the user.

The most important financial statement for the majority of users is likely to be the income statement, since it reveals the ability of a business to generate a profit.

The statement of cash flows presents a more clear view of a company's cash flows than the income statement, which can sometimes present skewed results, especially when accruals are mandated under the accrual basis of accounting.

Auditor perspective. Auditors audit the balance sheet, so that is the document that they have the greatest interest in.

Investor perspective. Investor analysis of share value is largely based on cash flows, so they will have the greatest interest in the statement of cash flows.

Lawyer perspective. Anyone bringing a lawsuit against a company will want to review its balance sheet first, to see if there are enough assets to attach if the lawsuit is successful. Otherwise, it is not cost-effective to pursue a lawsuit.

Management perspective. Managers are responsible for fine-tuning the business, so they are likely to delve most deeply into the income statement.

Now that you have had an overview of the 3 basic financial statements, pretend you are an investor and you have $100,000 you must invest. The rules are.... You can only invest in 1 company, you only have a choice of company A, B or C, you must invest all of the $100,000 and you can only view one financial statement. Which statement would you choose to look at and why? Is there any particular line item on any of the statements that you would focus on? Why or why not?