What is the purpose of financial statement analysis?

The purpose of financial statement analysis is to review and analyze financial statements to make informed economic decisions. This process involves examining a company's income statement, balance sheet, and cash flow statement to assess its financial health, performance, and viability. By understanding financial metrics and trends, stakeholders, including investors, management, and creditors, can evaluate the company's profitability, liquidity, solvency, and operational efficiency.

This analysis is crucial for guiding investment decisions, establishing creditworthiness, and formulating strategies for improving financial performance. It enables decision-makers to identify strengths and weaknesses within the financial data, leading to more informed and strategic economic choices.

In contrast, tasks such as preparing tax documents, computing employee salaries, and generating a trial balance do not specifically focus on the interpretation or analysis of financial data to support economic decision-making. While these functions are essential in the realm of finance and accounting, they serve different objectives than those of financial statement analysis.