Original Research

Company financial health: Financial statement users’ and compilers’ perceptions

Elda du Toit, Frans Vermaak
Journal of Economic and Financial Sciences | Vol 7, No 3 | a239 | DOI: https://doi.org/10.4102/jef.v7i3.239 | © 2014 Elda du Toit, Frans Vermaak | This work is licensed under CC Attribution 4.0
Submitted: 22 June 2018 | Published: 31 October 2014

About the author(s)

Elda du Toit, University of Pretoria, South Africa
Frans Vermaak, University of Pretoria, South Africa

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Abstract

Some prior studies have investigated using analyses of financial statements to reveal companies’ financial health, but the usefulness of using such analyses to reveal the financial health of companies and possible presence of accounting irregularities in South African companies needed further investigation. This study examines whether users and compilers of financial statements believe that analysing financial statements can provide clear indications of companies’ financial health. The study was conducted by means of a structured questionnaire based on statements made by experts in the field of accounting and financial statement analysis. The results from 237 respondents show that the compilers and users of financial statements are convinced of the usefulness of financial statement analysis in evaluations of companies’ financial health. This suggests that close scrutiny of a company’s financial statements, with an attitude of scepticism, has the potential to reveal possible irregularities and raise red flags about unhealthy company practices.

Keywords

Accounting irregularities; decision-making; decision-usefulness; financial health; financial statements; prediction; ratio analysis

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