Laboratory tests serve four general purposes in investigating liver disease. Specific patterns of laboratory values can help by indicating hepatic damage (inflammation and necrosis) or the presence of cholestasis. Tests that measure proteins synthesized by the liver provide functional parameters. Finally, specific tests can be used to ascertain the etiology (cause) of the liver disease.

Tests indicating hepato-cellular damage
Aminotransferases (also called transaminases ) are enzymes that permit protein transformations within hepatocytes. Aspartate aminotransferase (AST, also called SGOT) is found in liver, heart, muscle, kidney, and erythrocytes, whereas alanine aminotransferase (ALT, also called SGPT) is found predominantly in the liver. An increase of these enzymes in the blood signifies hepatocyte damage or death (hepatocellular necrosis).All types of hepatitis ( viral, alcoholic, drug-induced etc.) produces blood elevation of these enzymes. They are inaccurately referred to as a liver function test by many physicians, but they do not indicate function of the liver whatsoever.
The level of aminotransferases in the blood may roughly correlate with the degree of inflammation or cell death, however, this is not always the case. An accurate estimation of inflammatory activity or the amount of cell death can only be made by liver biopsy. 
AST is less specific for liver disease than ALT as it is also produced in other organs; for example it can be elevated in the course of a heart attack. In many cases of liver damage , caused by viruses, the ALT/AST ratio is superior to 1, while in alcoholic hepatitis or in toxic hepatitis, the elevation of serum AST level may be higher than the elevation of serum ALT level (ALT/AST ratio inferior to 1).

Tests indicating presence of cholestasis ( alterated bile formation and flow)

Alkaline phosphatase is an enzyme produced in the bile ducts, intestine, kidney, placenta and bone. An elevated serum level of alkaline phosphatase especially if aminotransferases are modestly increased, suggests bile duct obstruction or bile duct diseases such as primary biliary cirrhosis. Alkaline phosphatase can also be increased during pregnancy and in some bone disorders. 

Gamma-glutamyltranspeptidase or Gamma-glutamyltransferase (gammaGT) is an enzyme produced in the bile ducts that, like alkaline phosphatase, may be elevated in the serum of patients with bile duct diseases. GammaGT is an extremely sensitive test and may be elevated in virtually any liver disease. GammaGT is also induced by many drugs, including alcohol, and its serum activity may be increased in heavy drinkers even in the absence of liver damage or inflammation.

Bilirubin is the major breakdown product that results from the destruction of old red blood cells . It is removed from the blood by the liver, chemically modified by a process called conjugation (conjugated bilirubin is formed), secreted into the bile, passed into the intestine and to some extent reabsorbed from the intestine. Many different liver diseases can cause serum direct bilirubin increase. In acute liver disease, the bilirubin is usually increased relative to the severity of the acute process. In chronic liver diseases, the serum bilirubin concentration is usually normal until a significant amount of liver damage has occurred and cirrhosis is present. In bile duct obstruction the direct bilirubin concentration is particularly elevated.

Tests indicating liver synthesis (real liver function tests)                       
Albumin is the major protein that circulates in the bloodstream. It is synthesized by the liver and secreted into the blood. Low serum albumin concentrations indicate poor liver function. The serum albumin concentration is usually normal in chronic liver diseases until cirrhosis and significant liver damage is present. Albumin levels can be low in conditions other than liver diseases including malnutrition, some kidney diseases etc. 

Prothrombin time (PT) . Many factors necessary for blood clotting are produced in the liver. When liver function is severely abnormal, their synthesis and secretion into the blood is decreased. The prothrombin time is a type of blood clotting test performed in the laboratory and it is prolonged when the blood concentrations of some of the clotting factors made by the liver are low. In chronic liver diseases, the prothrombin time is usually not elevated until cirrhosis is present and the liver damage is fairly significant.

Tests indicating the etiology (cause) of liver disease  
Many other laboratory tests target specific etiologies of acute or chronic liver disease, including viral infections, autoimmune diseases, and inherited metabolic diseases.