Today, businesses can now communicate with their investors, customers, and employees because of the internet, increasing their performance. Whether publicly traded or private companies, organizations can now share their annual financial reports, press releases, and company filings to their investors, regulators, or even their customers. At the core of every business are financial transactions that determine the company's ability to grow or go extinct. In this case, financial analysis involves selecting, evaluating, and interpreting financial transactions whereby its financial performance is measured by how well the company uses its resources to maximize returns. Financial reports are then composed and presented based on the collection of current and historical data with the help of a financial analyst which help answer a host of critical question and most aspects of a company's financial activities. These statements and reports thereby provide regulators, internal and external investors a comprehensive and accurate snapshot of the company's operational data needed to make decisions and take informed actions.
Since financial information is critical to both the company and stakeholders, there are several places to find such resources depending on its nature and geographical location. For example, in the Dominican Republic, financial and non-financial information can be retrieved from its prospect, usually made by a brokerage firm issuing debt. Additionally, Fitch and other rating agencies can also contain a summary of an institution's financial information, which is critical for the agency's calcification reports and analysis that sheds the classifications. On the other hand, publicly traded financial information of publicly-traded companies in the United States is found in the public domain since the constitution obligates them. These companies are required to prepare financial reports and other critical financial data for their shareholders and regulators. While financial information is important, other information about the company is required by a financial analyst to explain the institution's present conditions. Information such as the type of business, primary product, competitors, strategic objectives, and operating performance are drafted together with the financial reports to increase the amount of information to detect the current and future obligations of the institution. Therefore, a financial analyst requires information from the company's annual reports, press releases, the world bank, and other regulators to develop a company's financial analysis.
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Every publicly traded company is required by the law to disclose all their operational performance, description of their business, and strategic plans, including what they own and their debts. Overall, a regulatory framework that oversees these activities has been in place since the early 20 th century, specifically in 1933, when the Security Act was formed. New regulation offerings were proposed and implemented during this period, requiring auditors' independence to increase corporate responsibility. Since then, systems including the EDGAR system came into play which currently holds all company filings since 1994. During the disclosures, the most important filings include the 10-K, 8-K, 10-Q forms, Proxy Statements, and Schedule 13D, all of which hold corporate financial data, including the beneficial ownership of common stocks.
Even though financial statements are critical to all stakeholders within and outside the company, there are several issues that financial analysts should consider while using public financial data of the company. First, they should consider the accounting standards used by foreign companies since there are no international standards for financial reporting. Additionally, when companies report financial statements for multiple years, one should ensure that data from previous years are restated to reflect any changes in accounting methods over time. Finally, financial analysts should be aware of off-balance-sheet activities such as leases and pension benefits.
References
Medina, J. (2021). Financial Statement Analysis [PDF]. Retrieved 19 May 2021
