Meaning & Significance of Financial Assessment Assignment

Meaning & Significance of Financial Assessment - Assignment Example It helps gain access to fast, independent and reliable financial assessment reports in order to take better decisions. It enables to  achieve financial success. Financial assessment is based on past records and future projections. The company can gain much better control over their financial performance by looking at the past in order to help plan and predict the future. A sound financial plan contains a complete picture of the financial health of the business and the viability of strategic plans. It also helps to know whether the company is being run in a proper way during implementation, so that it can take preventive action before anything serious happens, for example, running out of cash. â€Å"Successful financial analysis and planning require an understanding of a company’s external and internal environments† (Analysis of Financial Statements Reviewing and Assessing Statements, 2006). Every enterprise should prepare certain statements in order to ascertain the f inancial condition of the business, known as financial statements. A financial statement has an important role in the decision making process. But the information in the financial statements is not effectively helpful in order to make a meaningful conclusion. Therefore, an effective and efficient analysis and interpretation of financial statements is necessary. Financial statement analysis  is â€Å"the process of identifying financial strengths and  weaknesses  of the firm by properly establishing  relationship between  the items of the balance sheet and the  profit and loss account† (Financial Statement Analysis, 2012). Analysis means establishing a significant relationship between a number of items of two financial statements with each other, in order to draw a meaningful conclusion. By financial statements we mean three statements: i. Balance Sheet or Position Statement ii. Profit and loss Account or Income Statement iii. Cash flow statement â€Å"The term fi nancial analysis is also known as analysis and interpretation of financial statements† (Financial Statement Analysis- An Introduction n.d). Financial statement analysis is an evaluation to assess the efficiency and performance of the firm. Thus, it is very essential to measure the financial soundness, efficiency, profitability, and future prospects of business units. Financial analysis serves the following purposes: Measuring profitability Indicating the trend of achievements Assessing the growth potential of the business Comparative position in relation to other firms Assess overall financial strength Assess solvency of the firm. Elements of financial assessment: Analysis of financial statement is an important part of the process of developing a business plan, as it also helps to monitor the success of that plan. Elements of financial analysis include:  Ã‚   1.  Budgeting- Budgeting is an important element of financial analysis. Creating a budget means setting out planned cash inflows and outflow of the business. It facilitates indentifying liquidity of the firm by