CFIN 4 4th Edition Besley Solutions Manual

The stockholders of a publicly traded company normally require the following financial information from the company for at least two recent accounting periods:

• A balance sheet which shows the position of assets and liabilities on a particular date.

• An income statement which shows the revenues and expenses during a particular accounting period.

• The statement of cash flows which includes both inflows and outflows during the accounting period.

• A statement of retained earnings showing the additions and subtractions in the common equity accounts during the accounting period.

It is important that the above financial information is audited by registered and recognized auditors who confirm that the accounts conform to stipulated and recommended accounting standards.

In addition, it is customary that the management also provides an explanatory statement regarding the operations during the accounting period, highlighting the reasons for notable changes in the financial statements between the two periods and the prognosis for the immediate future accounting period.

Though all the financial statements are important from the stockholder’s perspective, the changes in the common equity account reflected by the retained earnings statement is the most important as it reflects the change in value of the stockholder’s investment in the company during the accounting period.