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Question
From the following, identify the incorrect statement related to ‘Analysis of Financial Statements’.
Options
Financial Statement Analysis is used only by the creditors.
Financial Statement Analysis does not take price level changes into consideration.
Financial Statement Analysis ignores non-monetary aspects.
Financial StatementAnalysis helps to identify the reasons for change in profitability and financial position of the firm.
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Solution
Financial Statement Analysis is used only by the creditors.
Explanation:
This statement is incorrect because financial statement analysis is a versatile tool used by a wide variety of both internal and external stakeholders. While creditors use it to check a company’s debt-repaying ability, it is equally important for shareholders to track investment returns, the management to make strategic corporate decisions, and tax authorities to check statutory compliance.
