Analysis of Financial Statements — NCERT Solutions

The chapter says the basic financial statements in an annual report include the Cash Flow Statement. So the statement is True.

The chapter states that comparative statements are also known as horizontal analysis. So the statement is True.

The chapter says common size statements and ratio analysis are used in vertical analysis. So the statement is True.

Ratio analysis is used to establish relationships between items of the financial statements. So the statement is True.

The chapter says ratio analysis is a technique for analysing the financial statements of an enterprise. So the statement is True.

From Test your Understanding – III in the chapter, the statement “Financial analysis is used only by the creditors.” is marked False because financial analysis is used by many users, such as management, owners, lenders, investors, labour unions, and others.

From the chapter’s Test your Understanding – III, the statement “Statement of profit and loss account shows the operating performance of an enterprise for a period of time.” is marked True. It reports the results of operations over a period.

From Test your Understanding – III, the statement “Financial analysis helps an analyst to arrive at a decision.” is marked True. Financial analysis is used to interpret financial information and support decision-making.

From the chapter, Cash Flow Analysis is listed as one of the tools of financial analysis. So the statement “Cash Flow Statement is a tool of financial statement analysis.” is True.

From Test your Understanding – III, the statement “In a Common size statement each item is expressed as a percentage of some common base.” is marked True. That is exactly the meaning of a common size statement.