This topic discusses the objectives and limitations of financial statement analysis. In general, there are three objectives of financial statement analysis. Firstly, the information gathered from the analysis of the financial statement may identify the weaknesses as well as the strengths of a business. Secondly, the output of the financial statement analysis may assist the management of the business to take corrective action if weaknesses are found. Thirdly, the analysis of financial statement enables the business to improve its overall financial situation in the future.

As for the limitations of financial statement analysis, there are three limitations as well. Firstly, ratios are calculated based on historical information while decisions have to be made about the future. Secondly, the ratio only shows the strengths and weaknesses of a business performance but is not able to provide the causes to the condition. Thirdly, the comparison of ratio results will only be meaningful if the comparison is made between businesses that use similar accounting policies.

At the end of this topic, you should be able to:
1.1 explain the objectives of the financial statement analysis
1.2 describe the limitations of financial statement analysis

This topic explains how liquidity ratios measure the ability of a firm to meet its current obligations when they become due. There are two types of liquidity ratios; namely the current ratio and acid test or quick ratio.

At the end of this topic, you should be able to:
2.1 calculate the liquidity ratios
2.2 interpret the liquidity ratios

This topic discusses how profitability ratios measure the performance of a firm during an accounting period. There are a few main ratios under this category; namely gross profit margin, net profit margin and return on investment.

At the end of this topic, you should be able to:
3.1 calculate the profitability ratios
3.2 interpret the profitability ratios

This topic explains how efficiency ratios measure the efficiency of a business in managing its assets to generate revenue. There are two types of efficiency ratios; namely the inventory turnover ratio and average collection period.

At the end of this topic, you should be able to:
4.1 calculate the efficiency ratios
4.2 interpret the efficiency ratios