What is financial statement analysis used for?

Financial statement analysis primarily focuses on evaluating a firm's performance through a systematic examination of its financial statements. By using various ratios derived from these statements, analysts can assess aspects such as profitability, liquidity, solvency, and operational efficiency.

For example, common ratios used in this analysis include the current ratio, debt-to-equity ratio, return on equity, and profit margins, among others. These ratios provide insights into how well the company is managing its resources and generating profits, allowing stakeholders, including investors, management, and creditors, to make informed decisions.

In contrast, while assessing market trends, establishing pricing strategies, and determining tax liabilities can involve financial data, they do not primarily focus on the direct evaluation of a firm's financial performance through ratios, making them less central to the purpose of financial statement analysis.