CHAPTER ONE
INTRODUCTION
BACKGROUND OF THE STUDY
Financial statement analysis (or financial analysis) is the systematic way of reviewing and analyzing a company’s financial statements to make better economic decisions. These statements include the income statement, balance sheet, statement of cash flows, and a statement of changes in equity. The analysis of financial statement involves a specific method, process and techniques for evaluating risks, performance, financial health, and future prospects of an organization. With the development of industrial and commercial organizations and institutions in various countries has significantly increased benefiting from a range of finance sciences (Rahmani & et al, 2014). Financial reporting in organizations reflects the needs and expectations of various groups of users of the financial statements, such as investors, creditors and others to make informed decisions of economic. Set of financial statements is most significant tool of providing information to outside economic entities. The information provided in this form are useful for users if be transparent. In this regard, a financial statement is an important component management information system. Existence of financial statement of transparent and comparable is one of the main pillars of accountability executives and the basic needs of decision-makers of an organization. Although information can be extracted from various sources, but now the financial statements will form the core of financial information resources, so it should be has good quality (Darabi & et al, 2012). Expansion of public ownership of economic entities that realized in the form of emergence of public companies is a major cause of fundamental changes in the economic environment of recent years.
Whatever the quality of financial information provided in such an environment be more favourable, thus users are making economic decisions more effectively. As a result, the financial statements should at all possibility provide most reliable and relevant information (Mojtahedzadeh & Moemeni, 2003). The overall objective of any organization is to consistently grow and survive on a long term basis. Most managers are also aware that their organizations are part of a large system which has profound direct and indirect influence on their operations. This implies that if these organizations must effectively and efficiently meet their objectives, they should properly adapt themselves to their environments. Adapting organizations (especially firms) to their environments signifies a reciprocal or symbiotic relationship between the ‘duos’ as typified by systems model of viewing business. Considering the current environmental crisis, businesses must give more to their environment. The environment in which businesses operate is on an unsustainable course. We are now faced with serious challenge of environmental changes such as global warming, health care and poverty. This situation is similar to what Welford (2010) described as tangible environmental crises (serious water shortage across around the world, global food insecurity and decline in fish catches). According to (Vlek & Steg, 2007), Ezeabasili (2009) as human population continue to grow, material consumption intensifies and production technology further expands there is a steady decline in the quantity and quality of environmental resources. There is continuing concern about nature fragmentation and loss of biodiversity, shortages in freshwater availability, over-fishing of the seas, global warming, extreme weather events, air pollution, water pollution, environmental noise and utter neglect and disregard for the protection of the immediate environment, much more the future environment. This type of environmental un-sustainability associated with continuously rising demand and a shrinking resource base now spills over into social and economic instability.
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