Definition of Financial Analysis


In words of Myers John N., ??Financial Statement analysis is largely a study of relationships among the various financial factors in a business, as disclosed by a single set of statements, and a study of the trends of these factors, as shown by a series of statements.??

According to Finney and Miller, ??Financial analysis consists in separating facts according to some definite plan, arranging them in groups according to certain circumstances, and then presenting them in a convenient and easily readable and understandable form.??

Thus, analysis of financial statement implies classifying, arranging and comparing the information given in financial statements. It helps in establishing relationship between different accounting figures given in the financial statements.

Meaning of Interpretation of Financial Statements

Interpretation of financial statements refer to explaining the meaning and significance of the relationship established by the analysis of financial statements. Interpretation may be defined as the art and science of translating accounting figures in such a way that they reveal the financial strengths and weakness of the business firm. This is done by: (a) analysis and (b) comparison of data.

According to Spicer and Peglar, ?Interpretation of accounts may be defined as the art and science of translating the figures, in such a way as to reveal the financial strength and weakness of a business and the causes which have contributed there to.?

Thus, interpretation of financial statement involves explaining the meaning and significance of the relationship established by the analysis of financial statements.