1.

Financial statement analysis is used to examine both the relationships among financial
statement numbers and the trends in those numbers over time. There are two major
purpose of financial statement analysis. First, to use the past performance of a company
to predict how it will do in the future. By looking at the hostorical data resulted from
solving of financial statement analysis ratios, the analysis can predict a company’s future
profitability and cash flows. Second, to evaluate the performance of a company with an
eye toward identifying problem areas. To sum it up, financial statement analysis is both
diagnosis and prognosis. It identifies where a firm has problems and it predicts how a
firm will perform in the future.