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P2 C4 ANALISIS OF FINANCIAL STATEMENT — Elements of Account STD 12 Commerce — Question

Gujarat BoardEnglish MediumSTD 12 CommerceElements of AccountP2 C4 ANALISIS OF FINANCIAL STATEMENT3 Marks
Question
Describe the different types of financial analysis.
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Answer

Main three uses of financial analysis are as follows :
$1.$ For dividend decision : In the company form dividend decision is analysed by different parties like existing investors, potential investors and company itself. The payment of dividend is based on earning capacity of company which can be decided by profitability analysis and to take proper decision regarding dividend payment financial statement is useful.
$2.$ For lending decision: short term and long term loan and advances are provided to the business entities by banks and financial institutions. To know how far their advances are safe, financial statement analysis is useful.
$3.$ For borrowing decision: From the analysis of financial statements of their own, business entity can estimate its own borrowings capacity to borrow funds from the market. Based on this evaluation, opportunities for new investments can be explored.

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