Main benefits or advantages of financial statement analysis can be studied as follows:
1. Evaluation Of Past Performance
Financial statement analysis evaluates the past performance of business such as sales, cash flows, income, return on investment etc. by using different techniques like trend analysis, vertical analysis, ratio analysis etc.
2. Indication Of Current Position
Financial statement analysis indicates the current financial position of the business in terms of profitability and operational efficiency.
3. Prediction Of Future Performance
Financial analysis provides the data of past and current financial position of the business. These data and information are the bases to predict future earnings and growth rate of the business.
4. Planning And Decision Making
Financial statement analysis evaluates and compares the past and present performance of the business. It helps the management in planning and decision making process.
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5. Tax Determination
Financial statement analysis shows accurate financial position and profitability of the business. So, it helps to determine tax liabilities of the company.
6. Credit Decision
Financial statement analysis helps the bankers to make credit decision by providing up-to-date information regarding profitability, solvency, liquidity and efficiency of the business firm.
