The importance of financial statements comes into prominent play four times a year when companies report their quarterly results. Short-term traders need to know how to quickly extract from the financial statements how the company performed so they can size up the results with the expectations of analysts. Speculators will often push stocks up and down within seconds after an earnings release as they bet on the future.
Accounting isn't just for short-term traders. Some long-term investors use so-called fundamental analysis to select companies with solid financial trends. Investors like Warren Buffett, for instance, will parse the company's accounting to see if it has sustainable competitive advantages that help increase value over time. These types of investors aren't looking for short-term shifts in the business, but rather insights on the long-term value-creating potential of a business. Trend analysis of accounting helps reveal these potentially profitable trends.
Courtesy of USAToday
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