Final answer:
Business intermediaries follow four key steps in using financial statements to evaluate a company: involving early-stage investors, reinvesting profits, borrowing, and selling stock. Shareholders vote for the board of directors, and banks serve as financial intermediaries.
Step-by-step explanation:
When evaluating a company using financial statements, business intermediaries typically follow four key steps. These steps are: 1. early-stage investors; 2. reinvesting profits; 3. borrowing through banks or bonds; and 4. selling stock. These methods of raising financial capital are chosen based on various factors, including the level of imperfect information in the market and the firm's future profitability. Shareholders typically do not choose company managers directly but instead vote who will serve on their board of directors. Banks are known as financial intermediaries because they facilitate the movement of funds between savers and borrowers, which is critical for individuals, businesses, and the overall economy.
Comparing the company to its peers: Intermediaries compare the company's financial performance to similar companies in the industry to assess its competitive position and identify potential areas for improvement.Making recommendations: Based on the analysis and comparison, intermediaries provide recommendations to investors or other stakeholders regarding the company's financial prospects and suitability for investment or other purposes.