QS Study

Significance of Financial Statement Analysis:

Financial statements are final result of accounting work done during the accounting period. Financial statements normally include Trading, Profit and Loss Account and Balance Sheet. It is important as it provides meaningful information to the shareholders in taking such decisions. They are also important to a company’s managers because by publishing financial statements, management can communicate with interested outside parties about its accomplishment running the company.

  1. Judging the earning capacity or profitability of a business concern.
  2. Analyzing the short term and long term solvency of the business concern.
  3. Helps in making comparative studies between various firms.
  4. Assists in preparing budgets.
  5. The financial statement analysis provides important information to them for their purpose.
  6. It is important to them because they can obtain useful information for their investment decision making purpose.
  7. They are used as a prediction the firm’s future incomes distribution to shareholders members in terms of dividend.
  8. It is helpful to the government agencies in analyzing the taxation owed to the firm.