To know whether a firm can pursue a certain strategy, it must first know whether it has sufficient capital to fund the strategy.  Companies know this by analysing their accounts using ratios.

All companies must produce 3 financial documents every year: 

Balance Sheet, Income Statement and cash flow statement. These documents tell the business how much money it has generated and where the money is distributed in the business e.g. some of it may be cash but other money may actually be assets such as buildings or stock.