What is the primary goal of financial statement analysis?

The primary goal of financial statement analysis is to evaluate a company's financial performance and stability. This type of analysis involves examining key financial statements—such as the income statement, balance sheet, and cash flow statement—to glean insights into various aspects of the company's operations and financial health. By assessing metrics like profitability, liquidity, and solvency, stakeholders such as investors, creditors, and management can make informed decisions regarding investments, lending, and operational strategies.

Understanding a company's financial performance involves looking at trends over time, comparing figures against industry benchmarks, and analyzing ratios that highlight significant relationships between different financial variables. This comprehensive evaluation helps stakeholders gauge not only how well a company is performing in terms of generating income and managing expenses but also its ability to sustain operations, meet obligations, and grow in the long term.

While preparing taxes, establishing budgets, and ensuring compliance are important activities within a business, they are distinct from the primary objective of financial statement analysis, which focuses on providing a clear picture of financial viability and operational effectiveness.