What Is Meant by 'analysis of Financial Statements'? State Any Two Objectives of Such an Analysis. (2024)

FAQs

What Is Meant by 'analysis of Financial Statements'? State Any Two Objectives of Such an Analysis.? ›

The objectives of financial statement analysis are to assess financial performance, evaluate the financial position, identify trends and patterns, measure liquidity and solvency, and make informed decisions based on the analysis of financial statements.

Financial statement analysis is the process of analyzing a company's financial statements for decision-making purposes. External stakeholders use it to understand the overall health of an organization and to evaluate financial performance and business value.

Financial analysis is the process of evaluating businesses, projects, budgets, and other finance-related transactions to determine their performance and suitability. Typically, financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough to warrant a monetary investment.

Overall, the main objectives of creating financial statements include: Providing valuable insights about the financial position and performance of the company. To facilitate better decision-making by external stakeholders, such as investors, creditors, or regulators.

The objective of analysis is to help others make good decisions and judgements --- aka wisdom. By extending the analysis continuum, Popova creates space for an analyst to make a difference with their new knowledge or insight.

Investors use financial statement analysis to assess a company's profitability, growth potential, and financial stability. This analysis enables investors to identify companies that are likely to generate good returns on investment and avoid companies that are risky.

Financial analysis example

One example of a financial analysis would be if a financial analyst calculated your company's profitability ratios, which assess your company's ability to make money, and leverage ratios, which measure your company's ability to pay off its debts.

Both internal management and external users (such as analysts, creditors, and investors) of the financial statements need to evaluate a company's profitability, liquidity, and solvency.

What are the 2 main types of financial statements? ›

The three main types of financial statements are the balance sheet, the income statement, and the cash flow statement.

Answer: The 2 objectives of accounting are – Maintaining a systematic record of all financial transactions and preparing financial reports to access the financial position of the business organisation.

The objectives of financial management are as follows: Profit maximisation. Mobilisation of finance in a proper way. Ensuring the company's survival.

Objectives of analysis of financial statements are: It enables designing of effective plans and also execution of such plans by maintaining effective control over the financial resources. It provides the opportunity for meaningful comparison of financial data.

"The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions." Financial statements should be understandable, relevant, reliable and comparable.

There are five commonplace approaches to financial statement analysis: horizontal analysis, vertical analysis, ratio analysis, trend analysis and cost-volume profit analysis.

Financial statement analysis helps various stakeholders, such as investors, creditors, managers, and regulators, to make informed decisions about the company's value, profitability, liquidity, solvency, and efficiency.

The major elements of the financial statements (i.e., assets, liabilities, fund balance/net assets, revenues, expenditures, and expenses) are discussed below, including the proper accounting treatments and disclosure requirements.