Which among the following is NOT TRUE about the financial statement?

The correct answer is Option (4) → Financial analysis is used only by the creditors.

Financial analysis studies the relationships between the items of the balance sheet and the statement of profit and loss to judge the strengths and weaknesses of a firm. It is used by many groups — management, owners, lenders, investors, creditors, employees — so the word “only” makes this statement false.

Option (1) The financial statements of a business enterprise include cash flow statement — A true statement. A company’s financial statements are the balance sheet, the statement of profit and loss, the notes and the cash flow statement.

Option (2) Common size statements and financial ratios are the two tools employed in vertical analysis. — A true statement. Vertical analysis studies the items of one period against each other, which is what common size statements and ratios do.

Option (3) Comparative statements are in the form of horizontal analysis. — A true statement. Comparative statements set the same item for two or more periods side by side, which is horizontal analysis.