What is the purpose of financial statement analysis?

To assess the financial position and profitability of a concern.

To determine the long-term liquidity position of funds.

To compare financial statements of different firms.

To analyze the operational efficiency of a concern.

What is the main objective of analyzing financial statements?

To prepare budgets for the future.

To assess the operational efficiency of the concern.

To determine the long-term liquidity position of funds.

To reach logical conclusions about the position and progress of the business.

What are the limitations of financial statement analysis?

Financial statements are interim reports.

Financial statements are compiled on the basis of historical costs.

Financial statements may be differently interpreted by different users.

Financial statements reflect the progress of the position of the business.

What is the distinction between external analysis and internal analysis?

External analysis is conducted by executives and employees of the enterprise.

External analysis is based on published financial statements.

Internal analysis is conducted by investors and credit agencies.

Internal analysis is made by those who do not have access to the detailed records of the company.

What is the objective of long-term analysis of financial statements?

To assess the long-term financial stability and solvency of a business.

To determine the short-term liquidity and stability of a business.

To compare financial statements of different firms.

To know whether the concern will be able to earn a minimum amount in the short run.

What is the difference between horizontal analysis and vertical analysis?

Horizontal analysis is based on data from year to year.

Vertical analysis is frequently used for referring to ratios developed for one date or period.

Horizontal analysis is also known as dynamic analysis.

Vertical analysis enables the study of data in perspective.

Why is it important to analyze financial statements over a number of years?

To assess the financial stability of the concern.

To compare financial statements of different firms.

To determine the long-term liquidity position of funds.

To provide a meaningful conclusion through comparisons.

What is the objective of short-term analysis of financial statements?

To assess the long-term financial stability and solvency of a business.

To determine the short-term liquidity and stability of a business.

To compare financial statements of different firms.

To know whether the concern will be able to earn a minimum amount in the long run.

What is the significance of accuracy in financial statement analysis?

Accuracy ensures reliable basis for assessing performance.

Accuracy helps in preparing budgets for the future.

Accuracy facilitates the assessment of financial stability.

Accuracy provides a conclusive evidence of business performance.

What is a limitation of comparing financial statements of different firms?

It provides a reliable basis to assess performance.

It enables a comparative study of department-wise efficiency.

It may not provide a reliable basis to assess performance.

It helps in forecasting the future results.

Analysis of Financial Statements Free MCQ Practice Test with Solutions

	Cost Accounting 106 videos\|173 docs\|18 tests

	Cost Accounting 106 videos\|173 docs\|18 tests

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