Question

Any company in the U.S. that plans to issue stocks or bonds is required by the Securities and Exchange Commission to provide its balance sheet and income statement to the public. Why is this requirement in place? What kind of information that would be useful to potential investors can be found in these financial statements?

Can someone please provide a thorough explanation? My professor requires the responses to be at least 2 paragraphs but encourages it be more than that

Answer 1

Any company in the U.S. that plans to issue stocks or bonds is required by the Securities and Exchange Commission to provide its balance sheet and income statement to the public because:

• The balance sheet and income statement of a company shows its yearly or monthly financial growth and availability of capital and cash flow in the company. It gives clear picture of past, present and predicts future progress of a company.
• To insure the investor safety, it is important to provide its balance sheet and income statement for a company as investors need information to see the performance of company in the market on the basis of which they take decision to invest or not and how much to invest in the company stocks or bonds.
• According to the balance sheet and income statement investors will decide to hold the company stocks, sell them or to buy more stocks or bonds. In short it is important for companies to make their balance sheet and income statements public so that investors can make their investment decision by seeing the financial health of the company.    
• Government also analyse these financial statements for better economic decision making and also decides the tax burdens company going to pay according to their profits earnings and yearly turnovers.

The following useful information potential investors can find in these financial statements:

• Profits: the investors look for the profitability of a company in their financial statements because if the profitability of a company is high than the investors returns on investments will be also high.
• Cash flow: investors analyse the cash flow of a company through its financial statements which helps them in their decision making to invest or not. If the cash flow will be high that means the business is growing and it will be beneficial for investment.
• Debt statements: debt statements of a company give negative impacts about the company because if company is in high debt that means there are chances of company to go out of market. So investors will not invest in a company which has high debts as it will be loss of the investments because if company will go out of the market due to shortage of capital then there will be no return of investments.
• Turnover of the company: if the yearly turnover of a company in increasing then it will encourage investors to buy more stocks or bonds as there will be good returns on the investments.
• Sales: sales of a company show the overall sales made by a company in a financial year. If the sales are high that means the demand for the good or service is high in the market so the profits will be also high. It attracts investors to invest more in the company stocks.
• Assets of a company: investors also look for the current assets hold by the company because the assets (cash and cash equivalents) of a company show its financial stability and wealth. If company has more assets than its liabilities than it will attract more investments due to its secure and stable future in the business.

etc. are some points which a potential investor find in the balance sheet of a company.

*hope the answer will help you. Please give feedbacks. Thank you

*to make answer more clear i have written it in point. you can write it in paragraph form also.