Chapter 12: interpretation of accounts and ratio analysis

Question 1

what is the purpose of financial analysis

Answer 1

1. to identify relationships and significant changes in the financial performance and financial position
2. to highlight problem areas which require management attention and corrective action

Question 2

what are the fundamental bases of comparisons for financial analysis

Answer 2

1. against past results
2. budgeted or planned performances
3. other companies in the same industry or against industry averages