Interpretation of balance sheets and other financial statements : preliminary reflections

Abstract

Essentially, a balance sheet is a historic statement showing the financial position of a business at a given point in time; consequently, its use is somewhat restricted. Whoever studies a bal" ance sheet does so to get an indication of future, rather than past, performance and security. As a general rule a prospective investor, or lender, is primarily interested in the financial strength of the firm as it is likely to be in the months or years ahead. Therefore, he attaches greater importance to the security of his investment, and lesser to its yield.