Question

Which financial statement do you believe is most important to a potential investor? Defend your response.Which financial statement do you believe is most important to a potential lender? Defend your response.

Answer 1

In practicality the analysis of just one financial statement is not enough, To look at the bigger picture and make a final decision all the financial
statements should be considered as investment is a long-term affair and just looking at the profitability in Income statement or Solvency in
Balance sheet is not enough.
However if I have to choose just one financial statements before making an investment then I would choose Cash Flow Statement as it shows
that whether the company's operating is going smoothly or not through Cash flow from operating activities part and whether the business has enough
cash or not to finance it's projects which can be analysed through Cash flow from Financing activities and company is making investments or not.
So it goes to show that the Cash Flow Statement is a complete package and it is difficult to misrepresent cash flow statement.
Now as far as Lenders are consisdered they must analyse the Balance Sheet before deciding whether to lend money or not. It is because of the fact that
lenders main concern is that whether the company will be able to pay off its debt or not which can be analysed by amount of current assets the company has
If the company has enough current asssets to pay off it's liabilities then it is believed that the company is healthy and the lender can consider to lend the money
after conducting certaindue diligence