NCERT Class 12 Books Accountancy Part 2 Chapter 4- Analysis of Financial Statements

Safalta Expert Published by: Noor Fatima Updated Wed, 13 Jul 2022 10:55 AM IST


Here is the information about NCERT Class 12 Books Accountancy Part 2 Chapter 4. You can give a read to this blog and get PDFs of the subject. 

NCERT Class 12 Books Accountancy Part 2 Chapter 4- Analysis of Financial Statements is accessible here for download purposes. You can download the PDF for and learn from the book anytime you want. Students who are studying in Class 12 and candidates who are preparing for competitive exams can download the PDF for NCERT Class 12 Books Accountancy Part 2 Chapter 4- Analysis of Financial Statements to learn from the reading material.  

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Here, you can learn the NCERT Class 12 Books Accountancy Part 2 Chapter 4- Analysis of Financial Statements. Moreover, you can get the links for other chapters to download the links. 

Table of Content

The Starting of the Chapter
Glimpses of the Chapter
PDF Link


Analysis of Financial Statements Goes Like This-


After studying this chapter, you will be able to-
  • Explain the nature and significance of financial analysis
  • Identify the objectives of financial analysis
  • Describe the various tools of financial analysis
  • State the limitations of financial analysis
  • Prepare comparative and common size statements and interpret the data given therein
  • Calculate the trend percentages and interpret them
You have learnt about the financial statements (Income Statement and Balance Sheet) of companies. Basically, these are summarised financial reports which provide the operating results and financial position of companies, and the detailed information contained therein is useful for assessing the operational efficiency and financial soundness of a company. This requires proper analysis and interpretation of such information for which a number of techniques (tools) have been developed by financial experts. In this chapter we will have an overview of these techniques.

4.1 Meaning of Analysis of Financial Statements

The process of critical evaluation of the financial information contained in the financial statements in order to understand and make decisions regarding the operations of the firm is called ‘Financial Statement Analysis’. It is basically a study of relationship among various financial facts and figures as given in a set of financial statements, and the interpretation thereof to gain an insight into the profitability and operational efficiency of the firm to assess its financial health and future prospects

The term ‘financial analysis’ includes both ‘analysis and interpretation’. The term analysis means simplification of financial data by methodical classification given in the financial statements. Interpretation means explaining the meaning and significance of the data. These two are complimentary to each other. Analysis is useless without interpretation, and interpretation without analysis is difficult or even impossible.

4.2 Significance of Analysis of Financial Statements 

Financial analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationships between the various items of the balance sheet and the statement of profit and loss. Financial analysis can be undertaken by management of the firm, or by parties outside the firm, viz., owners, trade creditors, lenders, investors, labour unions, analysts and others. The nature of analysis will differ depending on the purpose of the analyst. A technique frequently used by an analyst need not necessarily serve the purpose of other analysts because of the difference in the interests of the analysts.

Financial analysis is useful and significant to different users in the following ways:

Finance manager: Financial analysis focusses on the facts and relationships related to managerial performance, corporate efficiency, financial strengths and weaknesses and creditworthiness of the company. A finance manager must be well-equipped with the different tools of analysis to make rational decisions for the firm. The tools for analysis help in studying accounting data so as to determine the continuity of the operating policies, investment value of the business, credit ratings and testing the efficiency of operations. The techniques are equally important in the area of financial control, enabling the finance manager to make constant reviews of the actual financial operations of the firm to analyse the causes of major deviations, which may help in corrective action wherever indicated.

Top management: The importance of financial analysis is not limited to the finance manager alone. It has a broad scope which includes top management in general and other functional managers. Management of the firm would be interested in every aspect of the financial analysis. It is their overall responsibility to see that the resources of the firm are used most efficiently and that the firm’s financial condition is sound. Financial analysis helps the management in measuring the success of the company’s operations, appraising the individual’s performance and evaluating the system of internal control.

Trade payables: Trade payables, through an analysis of financial statements, appraises not only the ability of the company to meet its short-term obligations, but also judges the probability of its continued ability to meet all its financial obligations in future. Trade payables are particularly interested in the firm’s ability to meet their claims over a very short period of time. Their analysis will, therefore, evaluate the firm’s liquidity position.

Lenders: Suppliers of long-term debt are concerned with the firm’s longterm solvency and survival. They analyse the firm’s profitability over a period of time, its ability to generate cash, to be able to pay interest and repay the principal and the relationship between various sources of funds (capital structure relationships). Long-term lenders analyse the historical financial statements to assess its future solvency and profitability.

Investors: Investors, who have invested their money in the firm’s shares, are interested about the firm’s earnings. As such, they concentrate on the analysis of the firm’s present and future profitability. They are also interested in the firm’s capital structure to ascertain its influences on firm’s earning and risk. They also evaluate the efficiency of the management and determine whether a change is needed or not. However, in some large companies, the shareholders’ interest is limited to decide whether to buy, sell or hold the shares.

Labour unions: Labour unions analyse the financial statements to assess whether it can presently afford a wage increase and whether it can absorb a wage increase through increased productivity or by raising the prices.

Others: The economists, researchers, etc., analyse the financial statements to study the present business and economic conditions. The government agencies need it for price regulations, taxation and other similar purposes.

Some Glimpses of the Chapter are-

NCERT Class 12 Books Accountancy Part 2 Chapter 4- Analysis of Financial Statements- PDF Download

Part 2 Chapter 4- Analysis of Financial Statements

Where can you download NCERT Class 12 Books Accountancy Part 2 Chapter 4 PDF?

Candidates can download NCERT Class 12 Books Accountancy Part 2 Chapter 4- Analysis of Financial Statements PDF for free on our page. Links are given below.

Part 2 Chapter 4- Analysis of Financial Statements

Are CBSE Books for Class 12 Accountancy important from an examination perspective?

For higher courses and board exams, the chapters in the CBSE Books for Class 12 Accountancy are essential. For Class 12 Accountancy, students should read the chapter provided in the CBSE books. These examples and drill questions can help you get high marks.

We offer practise test questions to assist you sharpen your exam preparations and earn top grades. E-books can also be downloaded if you want to prepare even more thoroughly.

Why is NCERT Class 12 Books Accountancy the best study material?

The book can also help in clarifying doubts. Other benefits of studying from the NCERT Class 12 Books Accountancy are-
  • Students gain profound knowledge about Accountancy through the NCERT Books Class 12 Accountancy
  • The course books contain pictures that can help students in better understanding of the chapters
  • These books can help students in self-study

Why is Accountancy from NCERT's Class 12 Books so highly recommended for board exams?

Nearly majority of the questions for board exams are taken from the Class 12 Accountancy NCERT Books. These books are also written by a group of qualified professors, making them a dependable resource for pupils.

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