Question : Which of the following statements is true?
Option 1: An objective of financial analysis is to determine operating efficiency and profitability.
Option 2: Determining operating efficiency and profitability is not an objective of financial analysis.
Option 3: Financial analysis is used for credit analysis.
Option 4: The purpose of financial statement analysis by trade creditors is to determine whether the amount due to them is safe.
Correct Answer: An objective of financial analysis is to determine operating efficiency and profitability.
Solution : Answer = An objective of financial analysis is to determine operating efficiency and profitability.
1. While determining operating efficiency and profitability is indeed one of the objectives of financial statement analysis, it is important to note that financial statement analysis serves multiple purposes beyond this specific objective.
2. The primary objective of financial statement analysis is to evaluate and interpret a company's financial statements to assess its financial performance, position, and prospects comprehensively.
3. This analysis helps various stakeholders, including investors, creditors, management, regulators, and analysts, make informed decisions about the company.
Hence, the correct option is 1.
