Which of the following is NOT an objective of analysis of financial statements.

To judge efficiency and eligibility of employees.

The correct answer is option (4) : To judge efficiency and eligibility of employees.

Option 4 is not objective of analysis of financial statements. Analysis judges 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.

Analysis of financial statements reveals important facts concerning managerial performance and the efficiency of the firm. Broadly speaking, the objectives of the analysis are to apprehend the information contained in financial statements with a view to know the weaknesses and strengths of the firm and to make a forecast about the future prospects of the firm thereby, enabling the analysts to take decisions regarding the operation of, and further investment in the firm. To be more specific, the analysis is undertaken to serve the following purposes (objectives):

• 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.