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Objectives of Ratio Analysis

The main objectives of analyzing the financial statements are summaries below:

(i)    The analysis would enable the calculation f not only the present earning capacity of business enterprise but also the estimation of the future earning capacity as well.

(ii)    The analysis would enable the management to find out the overall as well as department-wise efficiency of the firm on the basis fo available financial information. The management can easily discover the areas of efficiency or inefficiency.

(iii)    The solvency of the firm-short and long term-can be determined with the help of financial statements analysis. Short-term solvency position is useful to trade creditors while debenture holders etc. benefit from the analysis fo long-term solvency.

(iv)    Inter-firm comparison, that is, comparison of two or more firms becomes easy.

(v)    Analysis of past results in respect of earning and financial position of the enterprise is fo greet help in forecasting the future results. Analysis thus helps in repairing the budgets.

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