'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 Objectives of Analysis of financial statements: (Any two) 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. 2. to ascertain the relative importance of different components of the financial position of the firm. 3. to identify the reasons for change in the profitability/financial position of the firm. 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.