Identify which is not a tool of analysis of financial statements.

The correct answer is Option (4) → Historical Cost Analysis

The tools of analysis of financial statements are comparative statements, common size statements, trend analysis, ratio analysis and cash flow analysis. Historical cost is a basis for recording assets in the books, not a tool for analysing the financial statements.

Option (1) Trend Analysis — A tool of financial analysis. It studies the percentage changes in items over a series of years.

Option (2) Ratio Analysis — A tool of financial analysis. It relates items of the balance sheet and the statement of profit and loss to each other.

Option (3) Cash flow Analysis — A tool of financial analysis. It studies the actual movement of cash into and out of the business.