Final answer:
Footnotes and MD&A provide detailed information about a company's accounting and financial statement assumptions but may not fully capture the company's true performance as perceived by the market due to factors like imperfect information and expectation-driven stock prices. As firms grow, widely available financial data can suffice for investor decision-making, highlighting the role of market sentiment.
Step-by-step explanation:
The student has asked which aspect of reading the footnotes to a company's financial statements and the Management Discussion & Analysis (MD&A) section is least likely to help an analyst determine. Reading the footnotes and MD&A can provide analysts with detailed information that underlies the company's accounting system and insight into the various accruals, adjustments, and assumptions that went into the financial statements.
However, determining how well the financial statements reflect the company's true performance can be less straightforward due to the influence of factors like imperfect information. Assessing the true performance requires an understanding that the information available in financial statements may not always reflect the current and future potential due to shifts in market expectations and analyst predictions, which can significantly impact stock prices irrespective of the actual performance.
As a firm becomes established and its strategies indicate likely future profits, the need for investors to understand the business plans and managers personally diminishes. External investors such as bondholders and shareholders, despite not knowing the managers personally, are inclined to invest due to readily available information about products, revenues, costs, and profits.
This scenario points out that other factors, such as market sentiment and the expectations of financial analysts, can play a crucial role in shaping opinions about a company's performance rather than just the factual data presented in financial statements. Thus, while footnotes and MD&A are critical for understanding the mechanics behind the reported figures, they may not always provide a complete picture of the company's performance prospects in the eyes of the market.