Commerce Exam > Commerce Notes > DK Goel Solutions: Financial Statements Analysis
DK Goel Solutions: Financial Statements Analysis - Commerce PDF Download
Q1: What is the meaning of Financial Analysis?
Ans: Financial statements give a mass of complex information in the absolute monetary terms and reveal a bit about the solvency, liquidity and profitability of the enterprise. The data that is provided is classified into groups and a comparison of various groups is made with one another.
Q2: Mention 5 objectives of financial analysis.
Ans: 5 objectives of financial analysis are mentioned below:
- To measure the earning capacity or profitability
- To measure the solvency
- To identify the trend of the business
- To furnish useful data to the management
- To measure the financial strength
Q3: Mention 5 importance of financial analysis.
Ans: 5 importance of financial analysis are mentioned below:
- Significance for creditors
- Significance for government
- Significance for employees
- Significance for investors
- Significance for researchers
Q4: Mention any 2 uses of analysing the financial statements.
Ans: 2 uses of analysing the financial statements are mentioned below:
- Helpful in making investment decisions
- Helpful in making credit decisions
Q5: Explain how financial statement analysis ignores qualitative elements.
Ans: The qualitative elements like – the quality of labour force, public relations, quality of management etc., ignored while carrying out the analysis of financial statements.
FAQs on DK Goel Solutions: Financial Statements Analysis - Commerce
| 1. What is the importance of financial statement analysis in commerce? |  |
Ans. Financial statement analysis is crucial in commerce as it helps stakeholders assess a company's financial health, performance, and stability. By analyzing financial statements, investors, creditors, and management can make informed decisions regarding investments, lending, and strategic planning.
| 2. What are the key financial statements used in financial analysis? | |
Ans. The key financial statements used in financial analysis are the income statement, balance sheet, and cash flow statement. The income statement shows profitability, the balance sheet provides a snapshot of assets and liabilities, and the cash flow statement highlights cash inflows and outflows.
| 3. How can ratios be used in financial statement analysis? | |
Ans. Ratios are used in financial statement analysis to evaluate a company's performance and financial position. Common ratios include liquidity ratios, profitability ratios, and solvency ratios. These ratios provide insights into areas such as operational efficiency, profitability, and financial stability.
| 4. What are the limitations of financial statement analysis? | |
Ans. The limitations of financial statement analysis include the potential for misleading information due to accounting practices, the focus on historical data which may not predict future performance, and the inability to consider non-financial factors that can affect a company's success.
| 5. How does vertical and horizontal analysis differ in financial statement analysis? | |
Ans. Vertical analysis involves expressing each item in a financial statement as a percentage of a base figure (e.g., total revenue), while horizontal analysis compares financial data across multiple periods to identify trends and growth patterns. Both methods provide valuable insights but focus on different aspects of financial performance.
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Nov 13, 2024 Last updated |
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