Financial Statement Analysis is an important area of finance that is used by internal and external stakeholders alike. It enables companies to evaluate their financial information over time in order to make decisions about their business performance and value. It is also used by investors and creditors to assess the valuation of the company.

Financial accounting necessitates the preparation of a balance sheet, income statement, and cash flow statement, which together form the basis of financial statement analysis. These statements contain a company’s assets, liabilities, earnings and cash flow over a period of time. By analyzing these statements, it becomes possible to make important predictions about the future of the business and its current financial stability.

Three common techniques are used by analysts when analyzing financial statements. Horizontal analysis covers the comparison of financial statements over a period of time. By measuring changes in key financial values, trends can be identified in sales and expenses, as well as profits earned. Vertical analysis is the comparison of individual line items in a financial statement to the total that line item represents. This analysis can provide insight into how efficiently a business is operating and it is also useful for identifying sales and expense trends. Lastly, ratio analysis compares elements within financial statements to each other. Ratios such as the debt to equity ratio and return on equity provide key insights into the company’s financial position.

Financial statement analysis is an essential tool for both prospective and existing stakeholders in a company. By enabling careful and systematic analysis of a company’s finances, it serves as a valuable method of measuring the performance and value of an organization. It is an important part of making informed investment or lending decisions and provides valuable insight into a company’s current financial position and future prospects.