Having to make a formed investment decision either by an individual or a company requires a proper understanding of the financial statement of the third-party firm or company.

The primary use of accounting is to provide useful decision-making. It is important for the accountant to consider the intended users of financial information and the types of decisions users of this information make with such information through analyzing such available data.

These users of financial information (Individuals and Organisation’s) use it for different purpose and bring vary degree to understanding business activities.
Communicating financial information depend on the knowledge level of the potential users, their different levels of knowledge as well as the decision at hand.

In analyzing financial information, there is need for diversity of users of the information and their different levels of knowledge, decisions and the general nature of financial statements.

In other to understand the financial statement analysis, it is important to clearly understand the various users of the financial statements. There are two categories of users. The internal and external users. As for the internal users of the financial statements – management and employees are good examples on these categories.

Whence, on the external users of the financial statement, some clear examples are investors, creditors, suppliers’ regulatory agencies, stock market analyst and auditors.

We were taught the reasons why internal users use the financial statements. The internal users use it for planning, evaluating and controlling the company operations.

While the external users use the financial statements for assessment of the past, current and prediction about the future profitability and solvency of the company. It is also used to assess if the management has been efficient and effective in managing the resources of the organization.

This financial statement analysis can be found in the published annual accounts of an organization. The financial statements are a clear example, accompanied by the notes to the financial statements, letters to the shareholders, auditors report, Management’s Report and analysis as well as reports filed with the government and its agents.

Having learnt the various users and the purpose to the users of the financial statement. The methods of financial statement were not left out from the discussion. The methods are the Horizontal Analysis, Vertical Analysis, Common-size statements, Trend Percentages and the Ratio Analysis.

The horizontal analysis was explained as the comparative financial statements to calculate the dollars or percentage changes in a financial statement item from one period to the next. Example of comparing an item on the class in the current assets for 2020 and that of the same item in 2021.

In other to distinguish the difference between the horizontal and vertical analysis, we went further to have a deep understanding on the approach to the vertical analysis. The vertical analysis was said to be that in a single financial statement, the individual item is expressed as a percentage of a significant total. A clear example of these is the percentage of total asset against the individual items of asset or on the income statement, the percentage of all income to the sales figure.

The brief working on the common-size statement was shared as that financial statement that is not expressed in absolute dollar amounts but only represented in percentages.

On the other hand, the trend percentages show the changes in each financial statement items over several years which helps in evaluating financial information of those previous years.

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