Certified Financial Management Specialist Practice Exam

What is the main purpose of Financial Statement Analysis?

1. To prepare tax returns

2. To evaluate financial statements for decision-making

3. To manage cash flow more efficiently

4. To confirm regulatory compliance

The correct answer is: To evaluate financial statements for decision-making

The main purpose of financial statement analysis is to evaluate financial statements for decision-making. This process involves scrutinizing an entity's financial reports, such as the income statement, balance sheet, and cash flow statement, to assess its performance, profitability, liquidity, and overall financial health. Through this analysis, financial managers, investors, and other stakeholders can identify trends, make forecasts, and inform their investment or management decisions effectively. It helps in understanding the implications of the financial data in the context of the industry, economic environment, and the company's strategic goals. While preparing tax returns, managing cash flow, and ensuring regulatory compliance are important activities within financial management, they do not capture the broad objective of analyzing financial statements, which focuses primarily on supporting informed decision-making.