Which of the following statements) describe the principal reasons) why investors and
creditors use financial statement analysis?

1. To assess the risks associated with expected returns
2. To establish recommended dividend and interest payments
3. To evaluate top and middle level management
4. To predict the amount of expected returns

A)1 and 2
B)1 and 4
C)3 and 4
D)1, 2, and 3

Question

Which of the following statements) describe the principal reasons) why investors and
creditors use financial statement analysis?

1.	To assess the risks associated with expected returns
2.	To establish recommended dividend and interest payments
3.	To evaluate top and middle level management
4.	To predict the amount of expected returns

A)1 and 2
B)1 and 4
C)3 and 4
D)1, 2, and 3

Quizplus · Accepted Answer

1 and 4 are correct because investors and creditors analyze financial statements primarily to assess the risks associated with expected returns and to predict the amount of expected returns. Establishing recommended dividend and interest payments is typically a decision made by a company's management, not by investors or creditors through financial statement analysis. Evaluating management performance can be a reason for analysis, but it is not a principal reason in the context of financial decision-making.

Which of the Following Statements) Describe the Principal Reasons) Why