Analysis of Financial Statements
- Mere presentation of financial statements does not serve any purpose to the users of accounting data.
- The financial statements are useful only when they are analyzed and interpreted.
Objectives of Analysis of Financial Statements
- To interpret the profitability and efficiency of business activities with the help of Profit and Loss Account.
- To measure the managerial efficiency of the firm.
- To value the short term and long term solvency (capacity to repay the debts) of the business.
- To ascertain the earning capacity for a future period.
- To determine future potential of a concern.
- To identify the level of utilization of various assets during the financial period.
Tools for Analysis of Financial Statements
- Ratio Analysis
- Cash Flow Analysis Funds Flow Analysis
- Comparative Financial Statements
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