Which statements are true?

(A) The financial statements of a business enterprise include cash flow statement.

(B) Comparative statements are the form of horizontal analysis.

(C) Ratio analysis help business in identifying the problem areas.

(D) Financial analysis is used only by the creditors.

Choose the correct answer from the options given below:

(A), (B) and (C) only

The correct answer is option 1- (A), (B) and (C) only.

(A) The financial statements of a business enterprise include cash flow statement. IT IS TRUE. Financial statements are the basic and formal annual reports through which the corporate management communicates financial information to its owners and various other external parties which include investors, tax authorities, government, employees, etc. These refer to: the balance sheet (position statement) as at the end of accounting period, the statement of profit and loss of a company and the cash flow statement.

(B) Comparative statements are the form of horizontal analysis. IT IS TRUE. Comparative Statements are the statements showing the profitability and financial position of a firm for different periods of time in a comparative form to give an idea about the position of two or more periods. It usually applies to the two important financial statements, namely, balance sheet and statement of profit and loss prepared in a comparative form. The financial data will be comparative only when same accounting principles are used in preparing these statements. If this is not the case, the deviation in the use of accounting principles should be mentioned as a footnote. Comparative figures indicate the trend and direction of financial position and operating results. This analysis is also known as ‘horizontal analysis’.

(C) Ratio analysis help business in identifying the problem areas. IT IS TRUE. Ratio Analysis describes the significant relationship which exists between various items of a balance sheet and a statement of profit and loss of a firm. As a technique of financial analysis, accounting ratios measure the comparative significance of the individual items of the income and position statements. It is possible to assess the profitability, solvency and efficiency of an enterprise through the technique of ratio analysis. The ratio analysis if properly done improves the user’s understanding of the efficiency with which the business is being conducted. The numerical relationships throw light on many latent aspects of the business. If properly analysed, the ratios make us understand various problem areas as well as the bright spots of the business. The knowledge of problem areas help management take care of them in future. 

(D) Financial analysis is used only by the creditors- IT IS NOT TRUE as it can be used by different parties not only creditors.  Financial analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationships between the various items of the balance sheet and the statement of profit and loss. Financial analysis can be undertaken by management of the firm, or by parties outside the firm, viz., owners, trade creditors, lenders, investors, labour unions, analysts and others. The nature of analysis will differ depending on the purpose of the analyst. A technique frequently used by an analyst need not necessarily serve the purpose of other analysts because of the difference in the interests of the analysts

Thus, statements A, B & C are true.