Disucssion Question 1 week 2 Investment Information - Assignment Example

Investment Information Investment information refers to the data obtained from the comparison of performances of firms inthe same industry by a potential investor regarding their earnings forecasts so as to decide which one to invest in. Below are financial statements whose elements one would carefully consider before deciding to invest in a particular company:Cash flow statementThis is an accounting breakdown of the inflow and outflow of cash in the business enterprise, and below are the elements which a potential investor should carefully consider:1.

Ability to generate cash flow, The capacity to create cash flow in terms of profits is the backbone of a company and the basis for its fundamental value (Brigham & Ehrhardt, 2011). Thus an investor should choose to invest his or her financial assets on a company with a good record of cash generation from its daily business so as to reduce risk of investment and boost prospects of positive returns.2. Expenditure of available finances,The firms being considered by the investor might have realized high returns resulting to good cash flows.

In such cases, the criteria of choosing a suitable business entity to invest in will change- the investor should go for the company which invests its returns in a manner that would benefit him (Brigham & Ehrhardt, 2011). For example, Company A saves most of its return for a rainy day while company B pays its shareholders Balance sheetA balance sheet is often described as a "snapshot of a companys financial condition" categorically stating the balances of the business at the end of each financial year.

The left side comprises of the Assets (things the company owns ) listed in order of the time taken to change them to money (liquidity), and the right side made up of debts of the business and amounts payable. Thus, an investor should choose to invest his or her financial assets on a company with a large asset base which will ensure security of his invested capital in case of anything, and refrain from investing in companies with a high gearing ratio since it will result to a little or zero return on his investment and the risk of losing the invested capital increases largely.

ReferencesBrigham, E. F. & Ehrhardt, M. C. (2011). Financial Management: Theory and Practice. Mason, OH: Cengage Learning.Ryan, O. (2004). Finance and Accounting for Business. Mason, OH: Cengage Learning.