What is the primary purpose of financial statement analysis?

The primary purpose of financial statement analysis is to evaluate a company's financial health and performance over time. This involves examining key financial statements, such as the income statement, balance sheet, and cash flow statement, to gain insights into various aspects of the company’s operations. Analysts look for trends and patterns in revenues, expenses, assets, liabilities, and equity to determine the company's stability, profitability, and efficiency. By doing so, stakeholders can make informed decisions regarding investments, lending, or management strategies.

While evaluating profitability, assessing market share and competition, and projecting future sales are important components of financial analysis, they serve as specific objectives or outcomes of the broader goal of understanding overall financial health and performance. The comprehensive view offered by financial statement analysis encompasses all these aspects, making it essential for a thorough evaluation of a company’s standing and prospects.