Financial statement analysis tools encompass ratio, vertical, and horizontal analysis. Therefore, this section will seek to explore the pros and cons of the mentioned financial analysis tools. Ratio analysis helps in the determination of efficiency in operations and in analyzing the financial budget of the organization. However, the ratio analysis tool is useful only when the competitor organization is of the same size and type. Similarly, it ignores the current and future data trends and focuses on past data hence, not an effective analysis tool. The vertical financial analysis tool provides an easier way to compare financial statements within an organization as well as between different organizations. Nevertheless, the vertical analysis tool does not measure the liquidity of the organization.
The horizontal analysis tool allows for easy interpretation of organizations’ comprehensive information as well as monitoring growth and financial patterns. Nevertheless, horizontal analysis is seen as inconsistent due to ever-changing accounting principles and factors. Financial statement analysis facilitates the financial plans and management of an organization by reviewing the cash flows, liability, business trends, and budget preparation. Different financial statement analysis methods are utilized in an attempt to obtain organizational data and information regarding the assets, liabilities, profits garnered, losses incurred, growth, and competition patterns.