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Essay On The Importance Of Financial Analysis

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Finance is defined as the provision of money when it is required. Every business or an enterprise requires finance to start and continue a business. The analysis of financial statement is required for decision making.
Financial statement is the process of reviewing and provides a better understanding of the present and future financial health of the business. The goal of financial statement analysis is to equip the business with the knowledge it needs to effective decisions. It evaluates the past and projects a company’s future performance.
It is also known as interpretation of financial statements.
They are the means to present the firm’s financial situation to the users. Preparation of the financial statement is the responsibility of top …show more content…

Working Capital Decision iv. Dividend Decision
Uses of Financial Analysis:-
Financial Analysis can be used to take variety of decisions in the following areas:-
1. It helps in taking Investment decisions.
2. Analysis of financial statements is useful in making a decision whether to grant or extend credit to a customer.
3. It is useful in deciding how much portion of the profit is to be distributed as dividend and how much portion will you want to retain?
4. It helps in assessing the future growth potential of the firm.
5. Analysis of financial statements discloses the liquidity, solvency and profitability of the business.
6. Financial statement analysis is useful as it provides meaningful information to the shareholders in taking decisions regarding the holding of the shares. Techniques of Financial Statement Analysis:-
Some popular techniques used by companies to analyze financial statements. There are several popular techniques adopted:-
1. Horizontal Analysis – Also called comparative statement analysis. In this technique two or more financial statements are placed side by side to facilitate comparison. Both balance sheet and profit & loss account can be prepared in the form of comparative financial statements. When financial statements for a number of years are analyzed, the analysis is called horizontal analysis. Such analysis is mostly in the form of ‘Comparative Financial

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