Question

Answer the following question:
Explain briefly any four objectives of 'Analysis of Financial Statements'.

Answer 1

The following are the objectives of the Financial analysis:

1. It enables the conduct of meaningful comparisons of financial data. It provides a better and easy understanding of the changes in the financial data over time.
2. It helps in designing effective plans and better execution of plans by enabling control and checks over the use of financial resources.
3. Analysis of Financial Statements helps to know the earning capacity and profitability of a business firm. It also measures the efficiency of business operations.
4. It also helps in assessing the solvency position of the firm. This implies that by studying the analysis of financial statements the ability of a firm to discharge its short-term as well as long-term obligations (debts).