The future is the focus, the past gives us clues
Accounts are backward looking: so why do we bother to look at them? Historical facts about the company are not interesting in and of themselves. They are used to provide clues to what will happen. Directors’ performance in using resources in the past (their stewardship role) may help assess the likelihood of good managerial performance in the future. The level of debt relative to the amount of the equity capital in the business may provide a clue on the forward risk of bankruptcy. The analysis of past cash flow will help us assess the extent to which future revenues are likely to be swallowed up by investment in plant and machinery rather than being available for distribution to shareholders.
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