The correct answer is: A. Working capital analysis.
Working capital is a measure of a company’s ability to meet its short-term financial obligations. It is calculated by subtracting current liabilities
from current assets. A company with a healthy working capital ratio is able to pay its bills on time and has a cushion to absorb unexpected expenses.Short-term analysis of financial statements is important because it can help investors and creditors assess a company’s liquidity and solvency. Liquidity refers to a company’s ability to convert its assets into cash quickly. Solvency refers to a company’s ability to meet its long-term financial obligations.
Working capital analysis is a key component of short-term financial analysis. It helps investors and creditors assess a company’s ability to meet its short-term obligations. A company with a healthy working capital ratio is generally considered to be a good investment or credit risk.
Here is a brief explanation of each option:
- Option B, stability of the institution, is not directly related to short-term financial analysis. Stability refers to a company’s ability to withstand shocks and maintain its financial position over time. This is a longer-term concern than short-term liquidity and solvency.
- Option C, earning power potential of the organization, is also not directly related to short-term financial analysis. Earning power refers to a company’s ability to generate profits. This is a longer-term concern than short-term liquidity and solvency.
- Option D, the future position of the organization, is also not directly related to short-term financial analysis. The future position of an organization is determined by a variety of factors, including its long-term strategy, its competitive position, and the overall economic environment. Short-term financial analysis can provide some insights into a company’s future prospects, but it is not a reliable predictor of long-term success.