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Before we begin, it’s essential to keep in mind that this article is not a recommendation or advisory on the subject, and, by no means, should it be considered a sole source for investment decisions.
The aim of this article is to share insights and encourage the reader to research and draw their own conclusions.
Initial approaches to investments often start with financial reports. Which reports, you may ask? The classics: the balance sheet, the income statement, and the cash flow statement.
While this is not incorrect, it’s important to consider certain nuances based on their nature when incorporating these concepts into, for example, a company valuation and deciding whether to invest.
Financial reports do not systematically measure the risk a company is exposed to; instead, they allow for an analysis of data through ratios and provide disclosures of embedded risks within the company.
This is because the focus of a company’s financial statements, following generally accepted accounting principles, revolves around reports based on real historical transactions and operations.
Accounting-considered risk measures can be grouped into two categories: disclosures…
