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2.2 Analysis of Financial Statements—CBSE XII
Horizontal (or Dynamic) Analysis
Vertical (or Static) Analysis

Dynamic or Horizontal Analysis is a time series analysis. Static or Vertical Analysis is
carried out at one particular point of time, generally when the accounts are closed.

Intra-firm Comparison and Inter-firm Comparison
Intra-firm Comparison: A comparison of financial variables of an enterprise over a period of
time is known as Intra-firm Comparison. It is also called Time Series Analysis or Trend
Analysis. It analyses the performance of a business over a number of years and shows
trend of financial factors.
Inter-firm Comparison: A comparison of two or more enterprises or firms is known as Inter-
firm Comparison. It analyses and compares financial variables of two or more enterprises
or firms to determine their competitive position. When single set of statements of two
firms is compared, it is known as Cross-sectional Analysis.

PROCESS OF FINANCIAL STATEMENT ANALYSIS

Rearrangement of Financial Statements
Comparison
Analysis

Interpretation

PURPOSES (OBJECTIVES) AND SIGNIFICANCE OF FINANCIAL ANALYSIS

Assessing the Earning Capacity or Profitability
Assessing the Managerial Efficiency
Assessing the Short-term and Long-term Solvency of the Enterprise

Inter-firm Comparison
Forecasting and Preparing Budgets
Explainable and Understandable

USES OF FINANCIAL ANALYSIS

Security Analysis
Credit Analysis

Debt Analysis
Dividend Decision
General Business Analysis