Page 2 - LN FSA

Types of Financial Statement Analysis :

• There are two main approaches for the analysis of financial
statements

Horizontal Analysis: In this type of analysis, figure in the financial

statements for two or more years are compared and analyzed.

• It helps in knowing the trends of the business over a period of
time.

• It is also known as Time series analysis or Dynamic Analysis.

• Comparative statements and cash flow statements are example of
horizontal analysis.

• It is also known as intra firm analysis

Vertical Analysis: In this type of analysis, figures in the financial
statement for a single year are analyzed.

• It involves the study of relationship between various items of

Balance Sheet or statement of Profit & Loss of a single year or
period.

• It is also known as Static Analysis.

• Common size statements and ratio analysis relating to a particular

accounting period are examples of this type of analysis.
• It is also called inter firm analysis.

Uses of Finacial Statement Analysis:

• Securities Analysis: it is a process by which the investor comes to
know whether the firm is fulfilling his expectations with regard to

payment of dividend, capital appreciation and security of money.

• Credit Analysis : Such analysis helps in determining whether to give
credit or not

• Debt Analysis : It helps in determining the borrowing capacity of the

prospective borrower.