Why do financial analysts need accounting information? 

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Lorraine Caplan | College Teacher | (Level 1) Educator Emeritus

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Financial analysts need accounting information to assess the financial health of a company or the lack thereof for various reasons, such as analysis for the company itself, so it can improve its status, or investors, who are interested in investing in a company that is financially sound, or for potential lenders, who wish to be assured their loans will be paid back. This cannot be done without accounting information.

Some examples include an analysis of expenses and income, to see whether or not a company is making a profit, or an analysis of accounts receivable, which can tell the analyst whether the company is collecting the money it is due in a timely manner.  Another example is an analysis of cash flow. Is it steady, or is it clustered in such a way that makes some periods problematic for the company? A financial analyst can assess the inventory turnover in a company, to determine whether products are flying off the shelves or languishing in a warehouse, costing money and not generating any income. A financial analyst can see whether a company is under-capitalized or whether or not it is using its capital effectively to generate a profit. 

Balance sheets, financial statements, and owner's equity statements are all made up of the day to day accounting records of the company. These figures are aggregated in these statement and allow the analyst to create ratios and calculations that give an excellent picture of the company's health or sickness. Accounting is extremely important!

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