Firm and Individual Financial Reporting

Instructions

Discussion: Firm and Individual Financial Reporting Engage In this activity, we link personal and corporate finance to understand why people sometimes behave like corporations, and vice versa. We begin by asking why firms issue financial statements. Firms that sell ownership shares to the public are required by law to issue financial statements (see SEC, The Laws That Govern the Securities Industry), but many other firms also publish similar financial information describing income, assets, and liabilities. Individuals are asked to produce some of the same information as they apply for loans and credit. In this Discussion, we think about the mortgage loan application process to better illuminate information gleaned from a firms four key financial statements. Similarities exist between documentation requested of an individual applying for a loan and a firm accepting funds from investors. We explore why this may be true to understand the key financial statements. CaseText Transcript Case QuestionsInitial PostSpeaking as a loan officer, you may use the case of these two borrowers to illustrate the points you make in this discussion.Briefly discuss why firms issue financial statements, considering any one category of user interested in these statements.Using any one type of financial ratio as an illustration, explain how financial statements offer a picture of a firms ability to serve as a good manager of invested funds.Discuss any one financial ratio that a financial institution might use to evaluate the the suitability of an applicant for a personal loan (as an example of one ratio, search for the term "debt-to-income ratio").Discuss the similarities between a corporate income statement and balance sheet and the documentation required of a mortgage loan applicant.Responsive PostsPlease reply to two people. For each post, address the following questions:Comment on any one aspect of your peers discussion post that interests you.Discuss any one reason why contents of Financial Statements may not offer a correct picture of a firms ability to serve as a good manager of invested funds.

Answer