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Chapter: 12th Accountancy : Financial Statement Analysis

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Financial Statement Analysis

Business concerns prepare income statement and balance sheet at the end of an accounting period to ascertain the profitability and the financial position respectively.

FINANCIAL STATEMENT ANALYSIS

Introduction

Business concerns prepare income statement and balance sheet at the end of an accounting period to ascertain the profitability and the financial position respectively. These statements give the totals of different expenditures, revenues and the net result, namely, profit or loss during the given period and balances of assets and liabilities and capital as on the last date of the accounting period. Thus, financial statements are sources of financial information. However, these statements do not give the relationship among the various items or the reasons for changes in the amounts of these items between two dates and the effect of such changes. For this purpose, different tools of financial statement analysis are used.

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