Following are the objectives of financial analysis :
1. Knowing Profitability of Business: Financial statement are required to ascertain whether the enterprise is earning adequate profit and to know whether the profit have increased or decreased as compared to the previous years. So, that corrective steps can be taken well in advance.
2. Knowing the Solvency of the Business: Financial statement help to analysis to position of the business as regards to the capacity of the entity to repay its short as well as long term liabilities.
3. Judging the Growth of the Business : Through comparison of date of two or more years of business entity, we can draw a meaningful conclusion as regard to growth of the business. For example, increase in sales with simultaneous increase in the profits of the business indicates a healthy sign for the growth of the business.
4. Judging Financial Strength of Business : Financial statement help to entity in determining solvency of the business and help to answer various aspects.
5. Making Comparison and Selection of Appropriate Policy: To make a comparative study of the profitability of the entity with other entities engaged in the same trade, financial statements help the management to adopt sound business policy by making Intra firm comparison. .
6. Forecasting and Preparing Budgets: Financial statement provides information regarding the weak-spots of the business so that the management can take corrective measures to remove these short comings. Financial statements help the management to make forecast and prepare budgets.
7. Communicating with different parities: Financial statements are prepared by the entities to communicate with different parties about their financial position. Hence, it can be conducted that understanding the basic financial statements is a necessary step towards the successful management of commercial enterprise.