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Explain Who are Interested in the Analysis of Financial Statements and Why?

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Meaning of Analysis of Financial Statements : 

Analysis of Financial Statement is a Systematic Process of Analysing and Evaluating the Relationship between the Items of the Balance Sheet and Income Statement . Hence, Financial Analysis Reveals the Financial Strength and Weaknesses of the firm . Financial Analysis includes Both Analysis and Interpretation . 

Significance of Financial Analysis : 

(i) Significance for Creditors : Creditors include short-term creditors like bankers, trade creditors and also long-term credit grantors like debenture holders and financial institutions etc. 

(ii) Significance for Management: Management of a concern is interested in its financial condition, profitability and progress. It uses a number of methods, tools and techniques available to it to analyse the financial data. 

(iii) Significance for Investors: Investors and shareholders are the suppliers of the basic capital to run the concern. Such capital is exposed to all the risks of ownership. Investors are interested in the profitability, dividends declared and market value of their holding. 

(iv) Significance for Employees: Employees can judge, on the basis of analysis of financial statements, the profitability of the business enterprises. They can compute as to how much bonus and increase in their wages are possible from the profits of the business concern. Financial analysis also helps the trade union in negotiating wages agreements. 

(v) Significance for Government: Financial statement analysis provides useful information to various government departments like Income Tax, Sales Tax, Excise Duty etc. to determine tax liability of the concern. 

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