The mere preparation of Profit and Loss Account and Balance Sheet does not give more information for managerial decision making. Hence, there is a need for analyzing the financial statements. Various objectives of financial statement analysis are given below.
Objectives of Financial Statement Analysis
The objectives of financial statement analysis are presented below:
1. To estimate the earning capacity of the business concern.
2. To find out the operating performance of a company.
3. To examine efficiency of various business activities.
4. To find out the financial performance of a company.
5. To judge the managerial ability.
6. To compare the performance of a company for different periods.
7. To assess the borrowing capacity of the business concern.
8. To determine the long term liquidity and solvency of the business concern.
9. To decide about the future prospects of the business concern.
10. To know the profitability and collection policy of the business concern.
11. To verify the correctness and accuracy of the decision taken by the management already.
12. To compare the overall performance of the company with other similar companies.
13. To examine the impact of past decision of the management on financial aspect.
14. To determine the debt capacity of the firm.