Q. Describe
the necessity of Financial Statement Analysis.
1. Holding Of Share: Shareholders are the owners of the company. The
financial statement analysis is important as it provides meaningful information
to the shareholders in taking decisions.
2.
Decisions And Plans: The management of the company is responsible
for taking decisions and formulating plans and policies for the future. They,
therefore, always need to evaluate its performance and effectiveness of
their action to realise the company's goal in the past. For that purpose,
financial statement analysis is important to the company's management.
3.
Extension Of Credit: The creditors are the providers of loan capital
to the company. Therefore they may have to take decisions as to whether they
have to extend their loans to the company and demand for higher interest rates.
The financial statement analysis provides important information to them for
their purpose.
4.
Investment Decision: The prospective investors are those who have
surplus capital to invest in some profitable opportunities. Therefore, they
often have to decide whether to invest their capital in the company's share.
The financial statement analysis is important to them because they can obtain
useful information for their investment decision making purpose.
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