How can a firm assess its financial health and future prospects?
Answer & explanation
Correct answer: option 3
The process of critical evaluation of the financial
information contained in the financial statements in
order to understand and make decisions regarding
the operations of the firm is called ‘Financial
Statement Analysis’. It is basically a study of
relationship among various financial facts and
figures as given in a set of financial statements, and
the interpretation thereof to gain an insight into the
profitability and operational efficiency of the firm to
assess its financial health and future prospects.