The purpose of financial statement analysis is to help us users make better business decisions. These users include decision makers both internal and external to the company.
Internal users of accounting information are those individuals involved in managing and operating the company. The purpose of financial statement analysis for these users is to provide information helpful in improving the company’s efficiency or effectiveness in providing products or services. On the other hand, External users of accounting information are not directly involved in running the company, there are just rely on financial statement analysis to make better and more informed decisions in pursuing their own goals.
General purpose financial statements are intended for the large variety of users who are interested in receiving financial information about a business but who do not have the ability to require the company to prepare specialized financial reports designed to meet their specific interest. General purpose financial statements include the income statements, balance sheet, statements of changes in equity, and statement of cash flows, plus notes related to the statements.
This statements are part of financial reporting, financial reporting refers to the communication of relevant financial information to decision makers. It not includes financial statements, but also involves information from fillings with the securities, commissions, new releases, minutes of meetings, forecasts, management letters, auditor’s reports, and analyses published in annual reports. Financial reporting broadly refers to useful information for decision makers to make investment, credit and other decisions, it should help users assess the amounts, timing, and uncertainly of future cash inflows and outflows.