'It is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationships between the various items…

• Analysis of Financial Statements (or Financial Statement Analysis) • Objectives of Analysis of Financial Statements (any two) $\displaystyle 1$) To assess the current profitability and operational efficiency of the firm as a whole as well as its different departments so as to judge the financial health of the firm. $\displaystyle 2$) To ascertain the relative importance of different components of the financial position of the firm. $\displaystyle 3$) To identify the reasons for change in the profitability/financial position of the firm. $\displaystyle 4$) To judge the ability of the firm to repay its debt and assessing the short-term as well as the long-term liquidity position of the firm.