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Extra Questions - Financial Statement Analysis | Crash Course of Accountancy - Class 12 - Commerce PDF Download

Q. 1. What is meant by Financial Statement Analysis? State any two limitations of it. {CBSE, All India Comptt. 2009}

Q. 2. State the various tools of Financial Statement Analysis.


Q. 3. Briefly explain any three limitations of Financial Statements Analysis. {CBSE, Delhi Comptt. 2010}

Q. 4. Briefly explain any three objectives of Financial Statements Analysis. {CBSE, All India Comptt. 2010}

Q. 5. What is meant by Analysis of Financial Statements? What is its importance to shareholders and employees? {CBSE, Delhi 2005 (III)}


Q. 6. What are the importance of Financial Analysis. {CBSE, Delhi 2009}

Q. 7. What is meant by Analysis of Financial Statements? How is it important from the viewpoint of creditors and management?

{CBSE, Delhi Comptt. 2005}


Q. 8. How is Analysis of Financial Statements important to Government Authorities? {CBSE, Delhi 2009 (III)}

Q. 9. Why is Analysis of Financial Statements important to Creditors? {CBSE. All India 2009 (I)}

Q. 10. Why is vertical Analysis of Financial Statements? {CBSE, All India 2009 (II)}

Q. 11. What is meant by Analysis of Financial Statements? How is it useful to investors and employees?

Explain in brief. (CBSE, All India Comptt. 2005 (I)}

Q. 12. How is the Analysis of Financial Statements useful to potential investors and Tax Authorities? Explain in brief. (CBSE, All India Comptt. 2005 (II)}


Q. 13. What is meant by Analysis of Financial Statements? Briefly explain horizontal analysis.


Q. 14. Distinguish between Horizontal Analysis and Vertical Analysis.


Q.15. How does 'subjectivity' become a limitation of Financial Statement Analysis? {CBSE, All India 2010 (III)} 

Ans. Subjectivity means using personal judgement in selecting the methods of accounting treatment. Since, subjectivity is inherent in personal judgement, analysis of such financial statements is not free from bias.


Q. 16. State the interest of tax authorities in the analysis of financial statements. {CBSE, All India 2011(I)}
Ans. 
Tax authorities are interested in knowing whether financial statements have been prepared in accordance with the legal provisions and whether the figures of production, sales and profits are correct to ensure proper assessment of tax liabilities.


Q. 17. State the interest of investors in the analysis of financial statements. {CBSE, All India 2011(11)}
Ans. 
Investors are interested in determining profitability of the company and safety of their investment. Financial analysis helps them in determining security of their investment and knowing profitability of the company in order to estimate expected dividend or rate of return on money invested.


Q. 18. State the significance of analysis of financial statements to Top Management' .{CBSE, All India 2012}
Ans. 
Financial statements analysis helps in measuring the success of company's operations, appraising the individual's performance and evaluating the system of internal control.


Q. 19. Explain how Financial Statements Analysis ignores qualitative elements. {CBSE, All India 2013 (III)}
Ans. 
Qualitative elements like quality of management, staff, public relations, etc. are ignored while carrying out the Analysis of Financial Statements.


Q. 20. Why are creditors interested in analysing Financial Statements? {CBSE, Foreign 2010)
Ans. 
Creditors are interested in knowing the firm's ability to meet its short-term liabilities, i.e. they want to assess financial position of the enterprise before giving loans or granting credit.

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FAQs on Extra Questions - Financial Statement Analysis - Crash Course of Accountancy - Class 12 - Commerce

1. What is financial statement analysis and why is it important?
Ans. Financial statement analysis is the process of evaluating and interpreting a company's financial statements to understand its financial performance and make informed decisions. It helps in assessing the company's profitability, liquidity, solvency, and overall financial health. Financial statement analysis is important as it provides valuable insights into a company's past performance, current position, and future prospects, assisting investors, creditors, and other stakeholders in making informed decisions.
2. What are the main financial statements used in financial statement analysis?
Ans. The main financial statements used in financial statement analysis are: 1. Income Statement: It shows a company's revenues, expenses, and net income over a specific period, indicating its profitability. 2. Balance Sheet: It presents a company's assets, liabilities, and shareholders' equity at a specific point in time, providing information about its financial position. 3. Cash Flow Statement: It highlights the inflows and outflows of cash and cash equivalents during a specific period, depicting a company's liquidity and cash management. 4. Statement of Shareholders' Equity: It displays the changes in a company's shareholders' equity, including retained earnings and capital contributions.
3. What are the common financial ratios used in financial statement analysis?
Ans. Some common financial ratios used in financial statement analysis are: 1. Profitability Ratios: These ratios assess a company's ability to generate profits, such as gross profit margin, net profit margin, and return on assets. 2. Liquidity Ratios: These ratios measure a company's ability to meet short-term obligations, including current ratio and quick ratio. 3. Solvency Ratios: These ratios evaluate a company's long-term financial stability and ability to meet long-term obligations, such as debt-to-equity ratio and interest coverage ratio. 4. Efficiency Ratios: These ratios analyze a company's operational efficiency, including inventory turnover ratio and accounts receivable turnover ratio.
4. How can financial statement analysis be used for investment decision-making?
Ans. Financial statement analysis plays a vital role in investment decision-making by providing valuable information about a company's financial health and performance. Investors can use financial statement analysis to assess a company's profitability, liquidity, solvency, and growth prospects. By analyzing financial ratios, trends, and other relevant information, investors can make informed decisions regarding buying, selling, or holding investments in a particular company. Additionally, financial statement analysis helps investors identify potential risks and opportunities associated with their investment choices.
5. What are the limitations of financial statement analysis?
Ans. While financial statement analysis is a valuable tool, it has certain limitations: 1. Historical Data: Financial statement analysis primarily relies on historical financial data, which may not accurately predict a company's future performance or potential risks. 2. Subjectivity: Financial statement analysis involves interpretation and judgment, making it susceptible to subjective assessments by different analysts. 3. Incomplete Information: Financial statements may not provide a comprehensive view of a company's financial situation, as they may exclude certain qualitative factors or off-balance sheet items. 4. Industry Differences: Comparing financial ratios of companies operating in different industries may not provide meaningful insights due to variations in business models and accounting practices. 5. External Factors: Financial statement analysis may not consider external factors, such as changes in the economy, industry trends, or regulatory environment, which can significantly impact a company's performance.
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