Q. Explain about Financial analysis?
The objective of financial statements is to provide information to all users of accounts to help them for decision-making. Note that most users will only have access to published financial statements.
The use of ratios
- To compare results over a period of time
- To measure performance against other organisations
- To compare results with a target
- To compare against industry averages
Ratios can be grouped into 3 main areas
- Performance - how well the business has done (profitability)
- Position - short term standing of the business (liquidity)
- Potential - what the future holds for the business