Analysis And Interpretation Of Financial Statements Essay

1 Introduction According to the American Institute of Certified Public Accountants, financial statements reflect â€Å"a combination of recorded facts, accounting conventions and personal judgements and the judgements and conventions applied affect them materially.† This implies that data exhibited in the financial statements are affected by recorded facts, accounting conventions and personal judgements. (Maheshwari, 1998) Ratio analysis is one of the powerful techniques which are widely used for interpreting financial statements. This technique serves as a tool for measuring the financial soundness of the business. It can be used to compare the risk and return relationship of firms of different sizes. The term ratio refers to the numerical or quantitative relationship between two variables. Ratio analysis is the process of identifying the financial strength and weakness of the enterprise as well as its historical performance and current financial condition can be determined. (Tulsian, 2012) Thus the financial statements will provide a summarized view of the firm. Statement of problem Analysis and interpretation of financial statement of the firm is a regular exercise to review the performance of the company. It was proposed to conduct a review to study the short term prospects as well as the long term trends and to arrive at the conclusion on the performance of the company. Performance review resulting in taking corrective action optimizes the performance in theShow MoreRelatedRatio Analysis : Analysis And Interpretation Of Financial Statements1490 Words   |  6 PagesRatio analysis is used to describe the important relationship that lies between figures based on line items in financial statements like the balance sheet, profit and loss account, and a budgetary control organization. Ratio analysis is a technique of analysis and interpretation of financial statements. 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