CHAPTER ONE
1.0 INTRODUCTION
A company’s financial statements are analyzed internally by management and externally by investors and creditors. Management analysis of financial statements primarily relates to parts of the company which enables management to plan, evaluate, and control operation within the company. Investors and creditors generally focus their analysis of financial statements on the company as a whole, which helps them decide whether to invest in or extend credit to the company. As a minimum, financial statement will include a statement of source and application of funds. Having been able to obtain a fair knowledge of the legal aspects of preparing financial statements and having worked examples through basic financial statements of a company, it is reasonable to begin to think of the significance of the futures therein. Corporate organizations owe a duty to fully disclose matters concerning their operations so as to aid investors in making investment decisions. Both large and small organizations in addition to satisfying the legislating requirement tend to retain existing investors and to attract potential ones through the publication of their financial statements where the capital stock of a corporation is widely held and its affairs are of interest to general public relations. The discussions and illustrations of the study will be centered on the financial statement presented to shareholders and also available for potential investors, bond holders and trade creditors as a tool of information for investment decision. Financial statement based on result on past activities are analyzed and interpreted as a basis for predicting future rate of returns and assessment of risk. Financial statement provides important information for a wide variety of decision, investors draw information from the statement of the firm in whose security they contemplate investing. Decision makers who contemplate acquiring total or partial ownership of an enterprise expect to secure returns on their investment such as dividends and increase in the value of their investment [capital gain]. Both dividends and increase in the value of shares of company depends on the future profitability of the enterprise. So investors are interested in future profitability. Past income dividend data are used to forecast returns from dividend and increase in share prices.
