Financial statements provide summary of the accounting of an organisation. The balance sheet reflects the assets and liabilities and capital as on certain data and the income statements tells about the results of operation in a certain period.
Financial statements consist of the following −
It provides entire operational of the concern like total revenue generated and expenses incurred for earning that revenue. Income statement helps to understand the gross profit and net profit of the concern.
It helps to ascertain and understand the total assets, liabilities and capital of the firm. One can understand the strength and weakness with the help of position statement.
Business concern also prepares some of others parts of statements for internal purpose, which are as follows −
It provides information about changes or position of owners’ equity in the company. It is also termed as statement of retained earnings.
It shows only about the position of finance. Statement of changes in financial position helps to identify the change in financial position of a company from one period to another period.
The types of financial statement analysis are based on material used and on methods of operations.
It is very much useful to understand the financial and operational position of business concern. It mainly depends on the published financial statement of the concern. This provides only limited information about the business concern.
It helps in understanding the operational performances of each and every department and unit of the business concern. Internal analysis helps to make decisions accordingly to achieve goals.
Financial statements are compared with several years and based on that decisions will be taken. This is also called as dynamic analysis.
Financial statements measure the quantities relationship of various items in the financial statement on a particular period. It is also called as static analysis.