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Evaluating overall performance and quality of financial statements

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1. Explain how you would go about evaluating the overall performance of a firm.

Suppose you have $100,000 and want to invest the money. How would you proceed to find a good company to put your money in? What is it you are looking for (it has to be in finance terminology)?

2. Discuss the importance of quality in a firm's financial statements, and how you would go about evaluating them.

How would you describe the quality in a firm's financial statements?

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Solution Summary

This solution answers questions regarding the evaluation of a company's performance and the quality of their income statements.

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Question 1

If I have $100,000 I want to invest, I would adopt a top-down approach in narrowing my investment selections and in selecting the company I would want to invest the money in. First, I would identify my investment objectives. In this case, I would like to have capital growth and a steady cash flow which can be achieved through dividends or interest receipts. Second, I would identify the industry that has the most growth potential in the next 5 to 10 years. After identifying the industry, I will make a company comparison for the ...

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