Financial statement analysis helps in judging the ability of the firm to repay its debt and assessing the short term as well as the long-term............... position of the firm.

Liquidity

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.