What is financial statement analysis used for?

Financial statement analysis is primarily used to evaluate a company’s performance and financial health. This process involves examining various components of financial statements, such as the income statement, balance sheet, and cash flow statement, to derive insights into a company's profitability, efficiency, liquidity, and solvency. Analysts look at key metrics and ratios derived from these statements to understand how well the company is managing its resources and generating income over a specific period.

By assessing these financial documents, stakeholders, including investors, creditors, and management, can make informed decisions about the company’s future prospects. For example, through ratio analysis, one can gauge operational efficiency, profitability margins, and financial stability, which all contribute to a comprehensive view of the company’s health.

The other options, while relevant to finance, do not specifically address the primary function of financial statement analysis. Projecting future market trends relies on a broader set of data and economic indicators beyond historical financial data. Determining tax obligations involves tax law and accounting principles rather than the analytical review of financial performance. Assessing employee performance in financial sectors pertains to human resource evaluation metrics rather than the fiscal health of a company.