Every year, all companies whether big or small, has to undergo financial system anlysis, for economic planning. In order to do so, accounts department has to take three major steps to provide informations to the users. They are :-

1. Accumulation of informations regarding economic events.

2. Measurement of monetary values of all the economic events.

3. Communication of data to the users through financial statements.

Accounts department identifies the data, measures it and communicates economic informations to the management of the company. Financial statements are the final reports prepared by the accounts department which reflects the financial position of a particular firm. These statements help the management to understand the present state of affairs of the company depending on which they take financial decisions. Financial statements are important not only for the management of the companies but also for the other parties who has interest in the affairs of the company. These other parties comprises of the shareholders, creditors, employees, suppliers, customers, government and the general public. Financial statements includes :-

1. A Balance Sheet

2. An Income Statement / Profit and Loss Account

3. Statement of charges in Financial Position e.g. Cash Flow Statement, Fund Flow Statement, Economic Value Added Statement, etc.

The data represented by the financial statements must be real as it reveals the firm's earning capacity and growth in the future. However, it is not possible to take any decision directly from the data presented in the report. They are first analysed and then interpreted. All statements are linked up to analyse the past, present and future performance of the concern. Then a financial analyst analyses the financial strength or weakness of the firm. They predict for the betterment of the future course of action. However, financial statement analysis not only contains the analysis of the financial data but also about the analysis of the non financial factors which affects the business. Non financial factors like customer relation, employee morale and ethic, risk involved, competition with the rivalry, etc.