Question

Imagine you are a shareholder of a company. Select 3 financial items or accounts that are most important to you. For each item or account, explain why it is important to you.

Answer 1

Things that are important too look and why are they important:

1: debt to equity ration:

A company with a low amount of debt in relation to its equity (total debt levels that are no higher than the company's total equity levels; a ratio of 1:1 or lower). Used as a safety measure, it tests how well the company can repay its debt obligations in the event that the company runs into serious financial problems. Generally, the lower the debt-to-equity ratio a company has, the less risky it is to you as an investor.

2.. Debt:
Debt scares investors for two reasons. One is simply that if you go out of business, debt holders get their money back before equity holders have a chance to claim what's left.
The second, and more important, is that debt payments eat up your cash. High debt payments can hinder your ability to meet payroll and other expenses during slow periods. They may also mean you have less cash available to help you handle a sudden surge in orders or an emergency equipment replacement.
One of the most common debt measures is the quick debt ratio — current assets (excluding inventory) divided by current liabilities. A quick ratio of 1 indicates that you can exactly meet your obligations, and the higher it is above that, the more flexibility you have.

3.Cash Flow :
In business, cash is king. A solid five-year plan does you no good if all your employees will walk out if you can't make payroll next week.
Investors view cash in the bank as a sign that you can deal with unexpected problems and capitalize on new opportunities. Free cash flow, the amount of cash that's left after you meet your expenses each period, is a sign of sustainable operations.
If you have both, investors won't have to worry that you could go under at any time.

4.Assets

All assets should be divided into current and noncurrent assets. An asset is considered current if it can reasonably be converted into cash within one year. Cash, inventories and net receivables are all important current assets because they offer flexibility and solvency.

Cash is the headliner. Companies that generate a lot of cash are often doing a good job satisfying customers and getting paid. While too much cash can be worrisome, too little can raise a lot of red flags.

5.Liabilities

Like assets, liabilities are either current or noncurrent. Current liabilities are obligations due within a year. Fundamental investors look for companies with fewer liabilities than assets, particularly when compared against cash flow. Companies that owe more money than they bring in are usually in trouble.

6. sales, operating profits

You don’t have to be a sophisticated investor to know that a significant year-to-year increase in debt levels, or a big decline in sales and/or operating profits, is a bad sign (as is reduced cash on hand if there hasn’t been an acquisition or special dividend). There can be sound explanations for any of these red-flag issues, but you’ll only search for those justifications if you find those flags flying in the documents. It’s entirely possible for a company to see its stock price rising as sales, profits and cash-flow are declining, but if those conditions make you nervous – and they should – you don’t want to be thinking everything is fine when Wall Street figures out that it’s not.