The financial statements are not useful unless they are properly analysed and interpreted. The process of analysis of financial statements involves the arrangements and rearrangement, grouping and regrouping of the financial and operational data appearing on the financial statements, and the calculations of ratios and trends therefrom. The process of the interpretation follows that of analysis and involves the attempts to arrive at logical conclusions regarding the performance and financial position of the business organisation.

This indicates the analysis carried out by those parties who have the access to the books and records of the company. Naturally, it indicates basically carried out by management of the company to enable the decision making process. This may also indicate the analysis carried out in the legal or statuory matters where the parties who are not a part of the management of the company may have the access to the books and records of the company.

This indicates the analysis carried by those parties who do not have the access to the books and records of the company. This may involve the analysis carried out by creditors, prospective investors and other outsiders. Naturally, those outsiders are required to depend upon the published financial statements. As such, the depth and correctness of the external analysis is restricted, though some of the recent amendments to the statues like companies act, 1956 have made it mandatory for the companies to reveal maximum information relating to the operations and financial position, in order to facilitate the correct and proper analysis and interpretation of the financial statements by the readers.