Question

Please describe me 5 advantages of interpreting financial statements

Answer 1

Advantages of financial statement analysis are:

1. The most important benefit if financial statement analysis is that it provides an idea to the investors about deciding on investing their funds in a particular company.
2. Financial statements reveal how much a company earns per year in sales. The sales may fluctuate, but financial planners should be able to identify a pattern over years of sales figures. For example, the company may have a pattern of increased sales when a new product is released. The sales may drop after a year or so of being on the market. This is beneficial, as it shows potential and sales patterns so executives know to expect a drop in sales.
3. Another advantage of using financial statements for future planning and decision making is that they show the company’s budgets. The budgets reveal how much wiggle room the company has to spend on launching products, developing marketing campaigns or expanding the current office size. Knowing how much money is available for planning and decision making ensures that the company does not spend more than expected.
4. Financial statement analysis is helpful to the government agencies in analyzing the taxation owed to the firm.
5. Above all, the company is able to analyze its own performance over a specific time period.