Meaning of Financial statement Analysis
Analysis of Financial Statements is the process of establishing and interpreting the quantitative relationship between various related items of financial statements to make qualitative judgement about the liquidity, long term solvency, operating efficiency and profitability of the enterprise.
Objectives of Financial Analysis:
Some of the important objectives of Financial Analysis are as follows:
1. To determine liquidity(short term Solvency):
It helps in determining the ability of the enterprise to meet its short term obligations as and when they become due.
2. To determine long term Solvency:
it helps in determining the ability of the enterprise to pay the interest regularly and to repay the principal on maturity or in pre determined instalments at due dates.
3.To determine operating efficiency with which resources are utilised in generating revenue
4. To determine profitability with respect to sales and investment.
5. To compare intra firm position:
It helps in evaluating the financial position and performance of the same enterprise over a period of time and to identify the strength and weakness and to take corrective actions if necessary.
6. To compare inter firm position:
It helps in evaluating the financial position and performance of the different enterprise in the same industry over a period of time and to identify the strength and weakness and to take corrective actions if necessary.
7. To make forecast and prepare budgets.
Objectives of Financial Analysis:
Some of the important objectives of Financial Analysis are as follows:
1. To determine liquidity(short term Solvency):
It helps in determining the ability of the enterprise to meet its short term obligations as and when they become due.
2. To determine long term Solvency:
it helps in determining the ability of the enterprise to pay the interest regularly and to repay the principal on maturity or in pre determined instalments at due dates.
3.To determine operating efficiency with which resources are utilised in generating revenue
4. To determine profitability with respect to sales and investment.
5. To compare intra firm position:
It helps in evaluating the financial position and performance of the same enterprise over a period of time and to identify the strength and weakness and to take corrective actions if necessary.
6. To compare inter firm position:
It helps in evaluating the financial position and performance of the different enterprise in the same industry over a period of time and to identify the strength and weakness and to take corrective actions if necessary.
7. To make forecast and prepare budgets.
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