What is the main purpose of financial statement analysis?

The main purpose of financial statement analysis is to evaluate a company’s financial performance. This process involves assessing various financial metrics and ratios derived from the financial statements—such as the income statement, balance sheet, and cash flow statement—to gain insights into the company's profitability, efficiency, liquidity, and solvency.

Investors, creditors, and management use this analysis to make informed decisions regarding investments, lending, and operational strategies. It helps stakeholders understand how well the company operates and how effectively it generates profit relative to its resources. By focusing on financial performance, stakeholders can compare the company's results over time or against industry benchmarks, enabling a clearer understanding of its health and growth potential.

While preparing statements for tax purposes, calculating dividends, and managing cash flow are important aspects of financial accounting and corporate finance, they are not the primary goal of financial statement analysis. This analysis serves a broader purpose of measuring and interpreting a company’s overall financial health, which in turn provides critical insights for various stakeholders.