Which of the following is True about analysis of financial statements?

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

(B) Financial analysis is used only by the creditor.

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

(D) Financial analysis helps an analyst to arrive at a decision.

Choose the correct answer from the options given below:

(A), (C) and (D) only

The correct answer is option 4- (A), (C) and (D) 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) Financial analysis is used only by the creditor- 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

(C) 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’.

(D) Financial analysis helps an analyst to arrive at a decision.  IT IS TRUE. Analysis of financial statements reveals important facts concerning managerial performance and the efficiency of the firm. Broadly speaking, the objectives of the analysis are to apprehend the information contained in financial statements with a view to know the weaknesses and strengths of the firm and to make a forecast about the future prospects of the firm thereby, enabling the analysts to take decisions regarding the operation of  and further investment in the firm.

Thus, statement A, C & D are true.