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Types of Financial Statement Analysis

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MEANING:

 Analysis of Financial Statements is the process of establishing and interpreting the quantitative relationship between various related items of financial statements to make qualitative judgement about the liquidity, long term solvency, operating efficiency and profitability of the enterprise.
Types of Financial Statement Analysis:

 1. Internal Analysis and External Analysis:
 Internal Analysis is conducted by the management to analysis the financial performance and position of the enterprise. It is based on detailed records since internal Analyst has access to the detailed records of the enterprise.
                                                          External Analysis is conducted by the outsiders such as short-term creditors, long term leaders, investors, government agencies, credit rating agencies. It is based on published financial statements, directors report and Auditors Report.

 2. Horizontal Analysis and Vertical Analysis:
Horizontal Analysis involves the comparison or establishment of relationship based on financial statements of an enterprise for two or more successive accounting period or financial statements of different enterprise for two or more successive accounting periods.
                                   Vertical analysis involves the analysis of financial data based on relationship among the components of financial statements for one accounting period.

 3. Intra firm analysis and inter firm analysis:
Intra firm analysis is a comparison of financial statements of an enterprise for two or more accounting periods. It is conducted to determine the trend of different financial variables over a period of time.
         Inter firm analysis is a comparison of Financial statements of two or more enterprise for the same accounting period. It is conducted to determine the relative position of the enterprise or compared to other competitive enterprise of the same industry.

 4. Cross Sectional Analysis:
It involves the comparison of actual ratios of one firm with those of other similar firms belonging to the same industry or industry average at the same point of time.


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