Defined as a method used to review and analyze the financial statements of a business entity, financial statement analysis provides insight into an entity's future performance by reviewing its past performance. This insight can also enhance the decision-making process by identifying problem areas.
Financial statement analysis uses analytical methods and ratios to evaluate the performance of a business, including the business’s liquidity, solvency, and profitability. Horizontal, vertical, and ratio analysis are common methods used to analyze financial statement information.