Why should an investor understand accounting?

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Offline fahmidaemran

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Why should an investor understand accounting?
« on: December 02, 2018, 03:27:12 PM »
Why should an investor understand accounting?
Learning How a Company Finances Their Operations

Another question that business accounting helps answer relates to the mix of debt and equity used to finance a company's operations. The ability to identify debt and equity is crucial in determining the company's value since the debt-to-equity ratio is commonly used in measuring a company's idiosyncratic risk. Although most information on debt and equity comes from the balance sheet, certain debt items require further digging and deep knowledge of business accounting.

For example, companies often choose to lease property instead of buying it. Under the U.S. GAAP, operating leases are not required to be included as a liability. However, operating lease payments are akin to debt payments, and investors may wish to treat the present value of operating leases as debt.

 Source: Investopedia https://www.investopedia.com/ask/answers/042715/why-it-important-investor-understand-business-accounting.asp#ixzz5YVuHoSUs
Best Regards,
Fahmida Emran
Lecturer,
Department of Business Administration
Faculty of Business & Economics
Daffodil International University