OMTEX CLASSES: State and Explain any ‘four objectives’ of analysis of financial statement from a business concern’s point of view.

State and Explain any ‘four objectives’ of analysis of financial statement from a business concern’s point of view.

Ans. The following are the objectives of analysis of financial statement from a business concern’s point of view.

(1) Measuring the profitability: The aim of any business organization is to earn profits and hence every company wants to know its profit earning capacity or the profitability of the organization as a whole. Financial statement analysis helps to know whether the profits of the firm are increasing or decreasing. It also helps to know the capacity of business to pay interest and dividend.

(2) To assess overall financial strength: Financial statement  analysis helps to know the financial soundness of business organization. It helps to take decisions regarding funds available for purchase of assets, payment of current liabilities etc. It also helps to know whether internal sources of funds are sufficient or borrowing of fund is needed.

(3) To know the efficiency of management: Financial statement analysis help to know the operational efficiency of management. It helps to know whether financial policies adopted by management are proper or not.

(4) To know the trend of business: Financial statement analysis help to know the business trends by comparing various types of data such as purchases, sales, expenses, incomes, net profit etc. For two or more years. This helps to know the progress of business.