In light of recent accounting and financial scandals (Enron, Tyco, Adelphia Communications), can or should investors...

In light of recent accounting and financial scandals (Enron, Tyco, Adelphia Communications), can or should investors solely rely on financial statements? Can investors have confidence in analysts employed by securities firms? What alternatives are there for investors?

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Expert Solution

Investors should never be solely relying upon the financial statement because financial statements are most time manipulated accordingly due to the managerial wish in order to reflect that they are positioning their company in a better way and they are making a higher amount of profit so these balance sheets are always manipulative of the performance of the company and these are not reflecting the complete scenarios of true business structure.

Investors should never be relying upon the balance sheet and financial statement completely and they should be having some confidence in their own analysis rather than having a confidence in the analysis of the analyst who are of securities firm because these securities firm are also interested into issuing such reports which are favorable to their own clients rather than general public so it can be said that investors should be relying upon his own research and he should be trying to generate his own valuations of the stock rather than believing up on the company's financial statement completely and analysts projects and source he should be looking at the Macro trends and the companies past performance and the current performance in order to derive the future performances of the company.

jeff jeffy answered 1 year ago

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