Final Answer:
The investor's objective in financial statement analysis primarily revolves around determining whether an investment is justified by estimating a company's future earnings stream. Thus option 1 is correct
Step-by-step explanation:
Financial statement analysis aids investors in evaluating a company's financial health and potential for generating future earnings. By scrutinizing income statements, balance sheets, and cash flow statements, investors estimate a company's profitability, liquidity, and solvency.
The focus is on assessing the company's ability to generate consistent earnings and cash flows over time. This estimation forms the basis for investment decisions, as it helps investors gauge the potential return on investment and the associated risks. For instance, ratio analysis (e.g., price-earnings ratio, return on equity) and trend analysis of financial statements aid in predicting a company's future performance.
Understanding a company's financial health is crucial in determining the sustainability of returns for investors. It involves forecasting future cash flows, discounting them to present value, and comparing this value to the current price of the investment to ascertain its attractiveness.
Additionally, analyzing a company's competitive position, market trends, and management's strategic decisions is essential to complement financial statement analysis and make informed investment choices. Ultimately, investors aim to identify companies with strong potential for growth and profitability, ensuring a justifiable investment in the company's stock or other financial instruments.
Thus option 1 is correct