What is the purpose of analyzing financial information?

Analyzing financial information primarily serves the purpose of determining variances, which involves comparing actual financial performance against budgeted or expected performance. This process helps businesses identify discrepancies in revenue, expenses, or other financial metrics, allowing them to understand how well they are achieving their financial goals. By identifying variances, organizations can investigate the reasons behind them, enabling informed decision-making and adjustments to strategies or operations.

For example, if a company discovers that its actual expenses significantly exceeded the budgeted amount in a given period, it can analyze the underlying causes—such as increased material costs or unexpected operational issues. This analysis allows management to take corrective action to address inefficiencies or control costs, ultimately improving financial performance over time.

In contrast, maximizing immediate profits, reducing employee overhead costs, and expanding product offerings are goals or strategies that might be influenced by analyzing financial data, but they do not capture the overarching purpose of variance analysis itself. The focus here is specifically on understanding performance through comparison, which is essential for effective financial management.