Question

It is the process of identifying the financial strengths and weaknesses of the firms by properly establishing relationships between the various items of the balance sheet and the statement of profit and loss. Identify the process highlighted in the above statement and state its any two objectives.

Answer 1

The process highlighted in the above statement is ''Financial Analysis". Objectives of Financial Analysis are:

1. Assess the earning capacity or profitability of an enterprise.
2. Assess the short-term and long-term solvency of an enterprise.
3. Assess the managerial efficiency.
4. Forecasting and preparing budgets.