Question

Explain the aim and the content of Financial Statement Analysis including its users and their purposes, and explore the main methods of financial statement analysis, specifically the Comparative Financial Statement Analysis (Horizontal Analysis), Vertical Analysis, Trend Analysis and Ratio Analysis.

Answer 1

Financial statement analysis will mean that analysis of the financial statement in order to determine the the financial health of a company which will include various statements like income statements and balance sheet and cash flows.

it has various users like internal users and external users and internal users would be those who are like management and employees and they will need the financial statements in order to make day-to-day decisions and help company in maximizing the profits.

there are external users of financial statements also like shareholders and government as well as suppliers along with trade unions and they will need the financial statements in order to make their respective decision, to protect their interest.

main methods of financial analysis could be comparative financial analysis which woild mean for comparing financial statements of the own company with previous years in order to determine the actual performance of company.

Vertical analysis is done with the financial statement of the other companies and ratios analysis are quantitative methods which will be used for determining the past trends and future trends of the company, and it is a highly helpful tool which will help the company and trend analysis will also mean recognising the past trends.