Analysis and Interpretation refers to a systematic and critical examination of the financial statements. It not only establishes cause and e Tect relationship among the various items of the financial statements but also presents the financial data in a proper manner. The main purpose of Analysis and Interpretation is to present the financial data in such a manner that is easily understandable and self-explanatory. This not only helps the accounting users to assess the fi nancial performance of the business over a period of time but also enables them in decision making and policy and financial designing process.
Bring out the importance of Financial Analysis The following are the importance of Financial Analysis:
• It helps in evaluating the profit earning capacity and financial feasibility of a business.
• It helps in assessing the long-term solvency of the business.
• It helps in evaluating the relative financial status of a firm in comparison to other competitive firms.
• It assists management in decision making process, drafting various plans and also in establishing an effective controlling system.
