Question

State any two objectives of 'Analysis of financial statement'.

Answer 1

Analysis of financial statements is a systematic process of identifying the financial strengths and weaknesses of the firm by establishing relationship between the items of the Balance Sheet and Income Statement.

Objectives of financial statement analysis are to:

(i) Measure the short-term solvency of the enterprise.

(ii) Measure the long-term solvency of the enterprise.

(iii) Measure the operating efficiency and profitability of the enterprise.

(iv) Compare intra-firm position, inter-firm position and pattern position within the industry.