Class 12 Accountancy - Company Accounts and Analysis of Financial Statements - Chapter Analysis of Financial Statement NCERT Solutions | What do you understand by analysis and i
What do you understand by analysis and interpretation of financial statements? Discuss its importance.
Financial statement analysis is the process of analyzing a companys financial statements for decision-making purposes. External stakeholders use it to understand the overall health of an organization as well as to evaluate financial performance and business value. Interpretation is making the numerical data (numbers) speak. Giving importance to language spoken by the numbers and providing appropriate and sufficient is useful during performance measure. Importance:
1) It provides internal and external stakeholders with the opportunity to make
informed decisions regarding investing. Financial statement analysis also provides lending institutions with an unbiased view of a business's financial health, which is helpful for making lending decisions.
2) Data interpretation is very important, as it helps to acquire useful information
from a pool of irrelevant ones while making informed decisions. It is found useful
for individuals, businesses, and researchers.
3) Analysis and interpretation of financial statements are an attempt to determine the significance and meaning of the financial statement data so that a forecast may be made of the prospects for future earnings, ability to pay interest, debt maturities, both current as well as long term, and profitability of sound.
4) Wrong and defective decisions are taken by the top management in the
absence of analysis and interpretation.
5) Sometimes, hasty and intuitive decisions are also taken by the various
responsible executives.
6) Everybody has limited experience in business activities. Hence, one can easily understand the complexities of business activities through analysis and
interpretation.
7) If any decision is taken on the basis of intuition or conclusion derived, there is
no meaning in decision and nobody understand the decision. In other words, if
the decisions are based on scientific analysis and interpretation, everybody
understand the decision very easily.
8) Analysis and interpretation are necessary to verify and examine the correctness and accuracy of the decisions already taken on the basis of intuition.
More Questions From Class 12 Accountancy - Company Accounts and Analysis of Financial Statements - Chapter Analysis of Financial Statement
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Explain the usefulness of trend percentages in interpretation of financial performance of a company.
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Describe the different techniques of financial analysis and explain the limitations of financial analysis.
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What is the importance of comparative statements? Illustrate youranswer with particular reference to comparative income statement.
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Explain how common size statements are prepared giving an example.
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What do you mean by Common Size Statements?
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List the techniques of Financial Statement Analysis.
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State the importance of Financial Analysis?
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What are Comparative Financial Statements?
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State the meaning of Analysis and Interpretation.
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Distinguish between Vertical and Horizontal Analysis of financial data.
Popular Questions of Class 12 Accountancy - Company Accounts and Analysis of Financial Statements
- Q:- What is meant by a Debenture?
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What do you mean by Ratio Analysis?
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State the meaning of financial statement analysis?
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What does a Bearer Debenture mean?
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What are various types of ratios?
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What are limitations of financial statement analysis?
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State the meaning of ‘Debentures issued as a collateral security’.
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What relationships will be established to study?
(a) Inventory Turnover (b) Debtor Turnover
(c) Payables Turnover (d) Working Capital Turnover - Q:-
List any three objectives of analysing financial statements?
- Q:-
What is meant by ‘Issue of debentures for consideration other than cash’?
Recently Viewed Questions of Class 12 Accountancy - Company Accounts and Analysis of Financial Statements
- Q:-
How will you disclose the following items in the Balance Sheet of a company;
(i) Loose tools
(ii) Uncalled liability on partly paid-up shares
(iii) Debentures redemption reserve
(iv) Mastheads and publishing titles (v) 10% debentures
(vi) Proposed dividend
(vii) Share forfeited account
(viii) Capital redemtion reserve
(ix) Mining rights
(x) Work-in-progress - Q:-
Describe the steps for creating Sinking Fund for redemption of debentures.
- Q:-
Explain the different terms for the issue of debentures with reference to their redemption.
- Q:-
State the importance of financial statements to
(i) shareholders
(ii) creditors
(iii) government
(iv) investors - Q:-
What relationships will be established to study?
(a) Inventory Turnover (b) Debtor Turnover
(c) Payables Turnover (d) Working Capital Turnover - Q:-
The average age of inventory is viewed as the average length of time inventory is held by the firm or as the average number of days’ sales in inventory. Why?
- Q:-
Name the head under which ‘discount on issue of debentures’ appears in the balance sheet of a company.
- Q:- What is meant by a Debenture?
- Q:-
The liquidity of a business firm is measured by its ability to satisfy itslong-
term obligations as they become due. What are the ratios used forthis purpose? - Q:-
What is meant by ‘Issue of debentures for consideration other than cash’?
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