1.1 BACKGROUND OF THE STUDY
Every business prepares profit and loss Account or income statement to ascertain the net result of financial working of the business whether it has earned some income or profit or sustained any loss. It also prepare balance sheet to find out the financial position of the business. Profit and loss account or income statement, retained earnings statement and balance sheet are known as financial statements.
Gautam (2005) sees financial statement as financial information which is the information relating to the financial position of any firm; when presented in a concise and capsule form. Besides profit and loss account and balance sheet, some other statements are also prepared for deriving certain conclusions. A schedule of current assets and current liabilities of two years may be prepared to know the changes in working capital. Similarly a fund flow statement and cash flow statement may also be prepared to ascertain the future estimate of cash receipt and payment. Thus, financial statement include: profit and loss Account, income statement and balance sheet along with certain schedules and statement. Ezeamama (2010) is of the opinion that rational decisions have to be taken to manage modern business successfully and for this rational decision to be taken in
line with the firms’ objective. Some a based on the strengths and weakness of the firms. Thus, the financial strengths and weaknesses of a firm are revealed in its financial statement.
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