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GEOFF STOREY LOOKS AT FINANCIAL ANALYSIS PROCESSES AND SOME OF THE USEFUL SOFTWARE PROGRAMS IN THIS AREA.
OVERVIEW
As accountants, we are well aware of the inherent limitations of traditional financial statements based as they are, at times, on contentious accounting standards and practices. For example, we can never consider "profits" as more than an opinion since a profit and loss account is not an absolute statement of objective, verifiable fact. Profit is a subjective estimate, and its accuracy is based on a host of assumptions, estimates, prudent provisions and standards.
If profit is an opinion, earnings per share do not count! What then about the hallowed price/earnings ratio? Accounting standards and opinions aside, all that investors really want to know is what cash yield or operating profit has been generated from cash invested! Clearly, traditional accounting fails the above tests.
TRADITIONAL FINANCIAL STATEMENTS
Over time there has been an unfortunate tendency by the accountancy profession to move the focus of its reporting function to a strictly compliance viewpoint, leaving the all-important shareholders without clear and concise financial information.
Statutory financial statements are designed to satisfy lenders of capital, and their structure does not provide a meaningful way for shareholders and management to...