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2.4 Analysis of Financial Statements—CBSE XII
• Purposes or Objectives of Financial Analysis
1. To assess an enterprise’s operating efficiency and profitability.
2. To assess financial stability of an enterprise.
3. To assess an enterprise’s short-term and long-term solvency.
4. To compare intra-firm position, inter-firm position and pattern position within the industry.
5. To assess the future prospects of an enterprise.

• Uses of Financial Analysis
1. Security Analysis
2. Credit Analysis
3. Debt Analysis
4. Dividend Decision
5. General Business Analysis
• Parties Interested in Financial Statements Analysis
1. Management
2. Employees and Trade Unions
3. Shareholders or Owners or Investors
4. Potential Investors
5. Suppliers or Creditors
6. Bankers and Lenders
7. Researchers
8. Tax Authorities
9. Customers

• Limitations of Analysis of Financial Statements
1. Historical Analysis.
2. Ignores the price-level changes.
3. Qualitative Aspect is ignored.
4. Limitations of Financial Statements are also the limitations of Financial Statement Analysis.
5. Not free from bias.
6. Financial analysis identifies the symptoms but does not arrive at the diagnosis.
7. Variation in Accounting Practices.
8. Window Dressing.