These statements include the income statement, balance sheet, statement of cash flows, notes to accounts and a statement of changes in equity (if applicable). Income, balance, and cash flow statements are typically used to extract ratios that divulge information such as solvency, price to earnings and return on equity. Financial statements analysis is very important to various users because it helps to express the overall financial health of the organization (Gibson, 2013). Company Financial Statements. Ratio Analysis is important for the company in order to analyze its financial position, liquidity, profitability, risk, solvency, efficiency, and operations effectiveness and proper utilization of funds which also indicates the trend or comparison of financial results that can be helpful for decision making for investment by shareholders of the company. If we look at financial statements, they are just numbers and numbers. In India, companies are required to present their financial statements according to the Companies Act, 1956. Financial statement analysis (or financial analysis) is the process of reviewing and analyzing a company's financial statements to make better economic decisions to earn income in future. Importance of Financial Statements: Firms prepare financial statements in order to meet their obligations as well as to get assistance in their strategic decision-making. Advantages of Financial Analysis Pattern Detection and forecasting: Financial statements have the ability to reveal earnings per year, sales and profits accrued. This review involves identifying the following item Limitations of Financial Statement Analysis: Financial analysis is a powerful mechanism of determining financial strengths and weaknesses of a firm. But, most of the users of these statements are concerned about the future. 8. These statements can tell what has happened during the specific period of time. Using annual and quarterly financial reports, a business can look at the accounting ratios in … Comparative statements deal with the comparison of different items of the Profit and Loss Account and Balance Sheets of two or more periods. Thus, the financial analysis suffers from serious inherent limitations of financial statements. Analysis and interpretation of financial statements are an attempt to determine the significance and meaning of the financial statement data so that a forecast may be made of the prospects for future earnings, ability to pay interest, debt maturities, both current as well as long term, and profitability of sound dividend policy. 1. For any financial professional, it is important to know how to effectively analyze the financial statements of a firm. Financial Statement Analysis And Financial Statements 1704 Words | 7 Pages. If you’d like to keep learning with free CFI resources, we highly recommend these additional guides to improve your financial statement analysis: Purpose of Financial Analysis. Financial accounting is concerned with financial transaction and statements that have already taken place. Why is financial statement analysis important. If your profit and loss statement tells you that you are earning a profit but your balance sheet and cash flow statement show you operating in the red, then you are probably on the right track and it's just a matter of time before you catch up. Financial Statement Analysis aka financial analysis is a process in which we review and analyze the company’s financial statements. Financial Statement Review University of Phoenix ACC/561 Financial Statement Review Introduction Financial statements play a significant role in each and every type of business. Importance of financial statements analysis by Happy Happy on. 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