Page 204 - DMGT104_FINANCIAL_ACCOUNTING

Financial Accounting Rupesh Roshan Singh, Lovely Professional University

Notes Unit 9: Analysis and Interpretation of
Financial Statements

CONTENTS

Objectives
Introduction
9.1 Meaning of Analysis of Financial Statements

9.1.1 Meaning of Financial Statement Interpretation
9.2 Analysis and Interpretation of Financial Statements
9.2.1 Procedure for Analysis and Interpretation
9.3 Types of Financial Statement Analysis
9.4 Techniques of Analysis and Interpretation

9.5 Summary
9.6 Keywords
9.7 Review Questions

9.8 Further Readings

Objectives

After studying this unit, you will be able to:

 Understand the meaning of Analysis and Interpretation of Financial Statements
 Describe the procedure for Analysis and Interpretation of Financial Statements
 Have types of Analysis of Financial Statements

 Know the techniques of Analysis and Interpretation
Introduction

We know that the financial statements include – Trading and Profit & Loss Account, Profit & Loss
Appropriation Account and the Balance Sheet. These statements give only the information to the
management regarding the financial conditions, and profits which help the management to
control the business. Therefore, for the better understanding of the financial statements, the
self-appraisal of the business and for the better judgement of outsiders regarding the performance
of the company, the analysis of the financial statements is done.

9.1 Meaning of Analysis of Financial Statements

Analysis of financial statement is the process of critically examining of the data of the financial
accounts. The main function of this analysis is to find the strengths and weakness of the business
by using different tools. Financial analysis severs the interests of the shareholders, debentures,
long-term and short-term investors, bankers, creditors, politicians, journalists, legislators,
economists and researchers by classifying, rearranging and regrouping the financial statements.
Thus it helps the interested parties to reach on significant conclusion.

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