For the Assertion (A) and Reason (R) below, choose the correct alternative.
Assertion: Financial statement analysis is a systematic process of analysing the financial data for its easy understanding and decision making.
Reasoning: Financial statements are analysed using analytical tools such as Comparative Statements Common Size Statements, ratios and Cash Flow statements.
Answer & explanation
Correct answer: option 2
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.
Comparative statements, Common Size Statements, Trend Analysis, Ratio Analysis and Cash Flow analysis are tools of Financial Analysis.