Financial Statements Analysis (FSA) refers to the process of the critical examination of the financial information contained in the financial statements in order to understand and make decisions regarding the operations of the firm.
The Financial Statement Analysis is basically a study of the relationship among various financial facts and figures is given in a set of financial statements. The basic financial statements i.e. the Balance Sheet and the Income Statement, contain a lot of historical data. The complex figures as given in these financial statements are dissected/broken up into simple and valuables elements and significant relationships are established between the elements of the same statement or different financial statements. This process of dissection, establishing relationships and the interpretation thereof to understand the working and financial position of a firm is called the Financial Statement Analysis.
Thus, the Financial Statement Analysis is the process of establishing and identifying the financial weaknesses and strengths of the firm. It is indicative of two aspects of a firm i.e. the profitability and the financial position and it is what is known as the objectives of the Financial Statement Analysis.