Financial statement analysis is the process of analyzing a companys financial statements to evaluate its financial performance and health for decision-making purposes. It involves synthesizing financial numbers and data from a companys balance sheet, income statement, and statement of cash flows. The analysis can be conducted internally by fund managers to make future business decisions or externally by investors to choose the best possible investment opportunities. The following are some of the advantages of financial statement analysis:

• It helps external stakeholders understand the overall health of an organization and evaluate financial performance and business value.
• It helps internal constituents monitor the finances and manage the finances.
• It enables an individual to watch where the money, goods, and services go.

Several techniques are commonly used as part of financial statement analysis, including horizontal analysis, vertical analysis, and ratio analysis. Horizontal analysis compares data horizontally by analyzing values of line items across two or more years, while vertical analysis looks at the vertical effects that line items have on other parts of the business and the businesss proportions. Ratio analysis involves calculating ratios from the financial statements to evaluate a companys liquidity, profitability, solvency, and efficiency. The financial analysis aims to analyze whether an entity is stable, liquid, solvent, or profitable enough to warrant a monetary investment.