Users of financial statements, foremost of which are investors, have a voracious appetite for information that better enables them to assess the financial position and performance of the reporting firm. Even though financial statements purport to address their needs, because the statements, which are prepared by the firm’s managers, conceal a range of managerial estimates, assumptions, judgments, and choices, investors are deprived of the most fundamental kernel of information they seek, namely the overall quality of the financial reports themselves.

Why is it important to have a strong understanding of interpreting financial statements?
Financial statements are communication tools which represents the financial activities or the financial standing of a commercial entity or a person. The statements are written from an accounting point of it and can be can be understood by a person who has basic knowledge in business and economics. Many people who did not major in economics, accounting and business studies do not have the knowledge to interpret and analyze financial statements. Having the knowledge to interpret financial statements is beneficial in various ways as discussed in this paper.