For example, an investor is a person with money who wants additional income. The investor sometimes has the opportunity to buy stock in a particular company. A company prepares financial reports, financial accounting's product, to inform investors and other interested parties about its financial performance. The principal financial reports are the income statement, balance sheet, and statement of cash flows. For example, an investor looks at the income statement to see if the company has made a profit in the past.
Past profitability is a factor in predicting future profitability.
The investor can look at the balance sheet to see if the company owes others a lot of money. A small debt load lessens the investment's risk. The statement of cash flows can show the investor the rate of dividend payouts in the past. This may not help the investor trust the manager, but it will enable the investor to trust the financial statements. Financial reports don't directly evaluate the manager, but they can be used by investors to help them form an opinion about the manager.