Question

You are an investment advisor for a client with $100,000 to invest in the stock of publicly traded companies. Your client-who has just enough accounting knowledge to be dangerous-has asked you to justify your advice based on the financial statements of the companies you recommend.

Your challenge is to:

1) Determine what specific information from each financial statement could best help you make your choice (possibilities include earnings, cash reserves, stock repurchases,level of debt, dividend payments, finacial ratios, etc.

2) What does that information tell you about the potential of the company to be a good investment?

3) Which of the three key statements-the balance statement, the income statement and the statement of cash flows is most important? Why?

Answer 1

Answer 3) I would recommend to make investment in stocks of Intel Corporation (INTC), as the company is one the oldest and sustainable business example in the country with vitals are as :

		Period ending	29/12/2018
Revenue	29/12/2018	Current assets
Total revenue	7,08,48,000	Cash and cash equivalents	30,19,000
Cost of revenue	2,71,11,000	Short-term investments	27,88,000
Gross profit	4,37,37,000	Net receivables	72,38,000
Operating expenses		Inventory	72,53,000
Operating income or loss	2,33,16,000	Other current assets	26,46,000
Income from continuing operations		Total current assets	2,87,87,000
Net income from continuing ops	2,10,53,000	Total assets	12,79,63,000
		Current liabilities
		Total current liabilities	1,66,26,000
		Long-term debt	2,50,98,000
		Other liabilities	1,16,76,000
		Total liabilities	5,34,00,000
		Stockholders' equity
		Common stock	2,53,65,000
		Retained earnings	5,01,72,000
		Treasury stock	-9,74,000
		Total stockholder equity	7,45,63,000
		Net tangible assets	3,82,14,000

Answer 2)The some important information tell about the capacity of company to be a good investment .

• Financial performance : which can be easily test by use of ratio analysis , like profitability ratio, Return of asset , return of equity and leverage ratio and etc.
• Company past record : mainly about the debt repayment , relationship with investors , relationship with customer etc.
• Cost of doing business : net operating profit or cost of capital in the company
• Management efficiency : about leadership position and their past records.
• Dividend record and past payment: Dividend Payment record

Answer 3) For investor point of view , valuation of share value is largely based on cash flows. So investors have the highest interest in the cash flow statement of company.