![]() In this section we describe the main elements of corporate financial reports and how to analyze them in a meaningful way. While board directors are not responsible for producing accounting documents, they are required to approve them, so they must be able to decipher them and detect potential problems. The purpose of financial statements is to show where the company’s money came from, where it went, and what the situation was at a particular point in time. Instead, they are better equipped to make wise decisions that create long-term value. They also find it easier to resist management fads such as financial and accounting engineering and excessive borrowing as well as avoiding M&A pitfalls that could destroy the company’s value. A list of sources with more details is provided at the end of this note.ĭirectors who are well versed in finance are better able to understand what drives a company’s performance, obtain the most from its value drivers and foresee the likely strategic outcomes of board decisions. It provides an essential foundation in finance and accounting from a board-level perspective by showing board directors how to interpret financial reports, read between the lines of financial statements, implement the desired capital structure, apply valuation techniques, make better merger and acquisition (M&A) decisions and oversee risk. This short note is aimed at board members who are not financial specialists. However, since accounting and finance drive a significant portion of the strategic decisions that boards make, directors need, and are expected to have, a strong grip on finance and accounting to be effective. Companies around the globe have been working to create high-performance boards made up of directors with diverse backgrounds, not necessarily in finance.
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