Bring out the importance of Financial Analysis - Accountancy - Analysis of Financial Statements

Question

Bring out the importance of Financial Analysis

Saurabh Mehta · Accepted Answer

Financial Analysis has great importance to various accounting
users on various matters Income Statements, Balance Sheets and
other financial data provides information about expenses and
sources of income, profit or loss and also helps in assessing the
financial position of a business These financial data are not
useful until they are analysed There are various tools and methods
such as Ratio Analysis, Cash Flow Statements that make the
financial data to cater varying needs of various accounting
users
The following are the reasons that advocate in favour of
Financial Analysis:
1 It helps in evaluating the profit earning capacity and
financial feasibility of a business
2 It helps in assessing the long-term solvency of the
business
3 It helps in evaluating the relative financial status of a firm
in comparison to other competitive firms
4 It assists management in decision making process, drafting
various plans and also in establishing an effective controlling
system