Question

"Creditors and investors depend on financial account information in order to access the financial state of a company. This information is needed in order for external parties to make critical decisions as to their involvement with a company. Through tools such as balance sheets a more detailed report of the companies assets and liabilities can be discovered.

Accounting statements can be considered by past or present or both perspectives. A companies past may not be of interest to external parties if the present financial statements have momentum in a positive direction. On the opposite side of the spectrum there are other situations where the present financial status are showing negative findings but because of the past statements creditors and investors may believe a company can make a come back.

Financial Accounting information can be used to gauge the projected future of a company. Creditors may decide to get out of a deal and cut its loses if a companies future looks as if it may not be able to reach it's projected goals in order to meet creditors and investors expectation. If the companies past trends show a high probability of growth and profit, creditors may want to invest more funds to take advantage of the future growth.

Investors may look at a longer projected time period compared to creditors. Even though investors may be prepared to make longer commitments, the decision is based on calculated past financial records. Often the most important information that is the sum of financial account information is the bottom line question, which is what is the net worth of a company? Even though this is an important question, how a companies value is determined is shown by financial accountant information."

Reply to Thread whether you agree or disagree

Answer 1

I agree with this Statement that "A Company's value is determined by Financial Accounting Information", But a Company's Value should NOT only be determined by Past Financial Statements only. If A Company in the past suffered huge losses & Company is progressing in current years, Creditors should rely on company & Investors should invest more money in the company to get more share in profits of company. If Debt-Equity Ratio is less than 1 i.e. company's Debt are less than Equity, Creditors will not lose its money, they will get repaid by the company.

If Price Earning Ratio is high As compared to Previous Years though Profit is less, Investors can invest their money into the company.

Not Only Net Worth But Other Financial Accounting Information is also Decisive factor for Investors & Creditors.

For valuation of Company 's Projections & Growth perspectives, both past & present financial statements are to be considered comparatively to check whether company will be able to meet creditors & investors's expectations.