The balance sheet and notes are apart of the financial statement. The notation, or ‘fine print’ is to advise the investors about the accounting polices, commitments made by the company and potential liabilities and losses. The ‘fine print’ contains vital information that is critical to comprehending and examining a company’s financial statements. While, over-viewing this information and incorporating into the financial status of Target, Liz is only paying attention to the fiscal year ending percentage of 65% by using the formula -$29,253/44,560×100=65%. But if Liz were to see the additional future (lease) information is in the amount of $3,694 and add this into the amount, she would clearly see what Tom is discussing with her is true. “When funds are borrowed to purchase assets the liability has a negative affect on the company’s dept to equity ratio and other measurable indicators of riskiness” (Epstein, 2014).
So Tom is absolutely correct, when he tells Liz that Target’s dept structure is risky and she should not invest in this company. The notes that include Target’s financial statement, should be utilized to formulate the principles of developing an investment determination. So be careful and read the ‘fine print’ any company’s financial documents, before committing.
References
Epstein, L. (2014). Financial decision-Making: An introduction to financial report. San Diego, CA: Bridgepoint Education, Inc.
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