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Chapter, Analysis of Financial, 4., Statements, 4.1 Meaning of Analysis of Financial Statements, 1 or 2 Marks, 1. *What do you mean by financial statement analysis?, Ans: The process of critical evaluation of the financial information contained in the financial statements in, order to understand and make decisions regarding the operations of the firm is called °Financial Statement, Analysis'., The process of critical evaluation of the financial information contained in the financial statements is called, financial statement analysis., (1 Mark), 1 Mark, 2. Give the meaning of “Analysis', with reference to 'Analysis' of financial statements., Ans: Analysis means simplification of financial data given in the financial statements by methodical, classification., 1 Mark, 3. Give the meaning of ʻinterpretation' with reference to ʻAnalysis of financial statements'., Ans: Interpretation means explaining the meaning and significance of the data., 2 Marks, 4. *Give the meaning of analysis and interpretation of financial statements., Ans: Analysis means simplification of financial data given in the financial statements by methodical, classification. Interpretation means explaining the meaning and significance of the data., 4.2 Significance of Analysis of financial statements, 2 Marks, 5. *State any two importance of financial statement analysis., Ans: Importance (or usefulness or significance) of financial statement analysis to different users:, (1) Finance manager: If helps the finance manager to determine the continuity of the operating policies,, investment value of the business, credit rating, testing the efficiency of operations and in the area of financial, control., (2) Top management: Financial analysis helps the management in measuring the success of the company's, operations, appraising the individual’s performance and evaluating the system of internal control., (3) Trade payables: It helps trade payables, to know the ability of the company to meet its short-term obligations,, by evaluating the firm's liquidity position), (4) Lenders: They analyse the firms profitability over a period of time, its ability to generate cash, to be able to, pay interest and repay the principal. Long term lenders analyse the historical financial statements to assess its, future solvency and profitability., (5) Investors: Investors concentrate on the analysis of the firm's present and future profitability. They also, evaluate the efficiency of the management., (6) Labour unions: Labour unions analyse the financial statements to assess whether it can presently afford a, wage increase and whether it can absorb a wage increase through increased productivity or by raising the, prices., Student's illuminator, /I PU Accountancy