describe the types of financial analysis on the basis of parties
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Answer:
TYPES OF FINANCIAL ANALYSIS
Financial statements are analysed by different parties for different purposed. The analysis is done from different angles. Accordingly, we can classify financial statement analysis into different categories as follows:
1. On the basis of concerned parties
According to different parties concerned with the operation of the company, the financial statement analysis can be of two types:
External Analysis
Internal Analysis
(a) External Analysis:
When the analysis is undertaken by outside parties namely existing and prospective investors, suppliers, lenders, government agencies, customers etc., it is external financial statement analysis. These external parties do not have any access to the internal records of the company; nor do they have any scope to know the hidden accounting policy, if any, of the management. So, they have to depend almost entirely on the published financial statements and other additional information supplied by the management.
(b) Internal Analysis:
This analysis is undertaken by the management of the company to monitor its financial and operating performance. As the analysis is done by the party who has access to the internal records and policies, it is expected to be more effective and reliable.