You Are Having Coffee with a Friend of Yours Who

question 98

Essay

You are having coffee with a friend of yours who is interested in investing in a Canadian public company. Your friend gives you the audited financial statements but says he does not understand how this information is supposed to be helping him. Explain what is contained in a complete set of financial statements and how this information can help your friend with his decision-making needs.

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Definitions:

Law of Diminishing Returns

An economic principle stating that, holding all else constant, as one input variable to the production process is increased, there comes a point when the added output from each additional unit of input decreases.

Productive

refers to the capability of producing significant amounts of goods and services, or contributing to economic output efficiently.

Intelligence

The ability to learn, understand, and make judgments or have opinions that are based on reason.

Variable Costs

Expenses that change in proportion to the activity of a business, such as costs for raw materials or production labor.