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Home Questions FN63E3JB4J
Target Exam

CUET

Subject

Accountancy

Chapter

Analysis of Financial Statements

Question:

What is the significance of financial analysis?

Options:

It is affected by personal ability and bias of the analysis

Suffers from the limitations of financial statements

Judges operational efficiency

Ignores qualitative aspect

Correct Answer:

Judges operational efficiency

Explanation:

* 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.
* To ascertain the relative importance of different components of the financial position of the firm.
* To identify the reasons for change in the profitability/financial position of the firm.
* 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.

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