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Importance of Financial Statement Analysis

In a nutshell, the objective of financial analysis is a detailed cause and effect study of profitability and financial position. Financial Statement Analysis and Interpretation is vital due to following reasons -

  • Estimation of future earning capacity along with computation of present earning capacity
  • Inter Firm Comparison
  • Determination of short as well as long term solvency of the firm
  • Finding out overall and department-wise efficiency of firm on the basis of available financial information 
  • Assessing development in future by making forecasts and preparing budgets
  • Focusing the attention on general financial strength of the business enterprise

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