Question

_____ is not a tool of 'Analysis of Financial Statements'.

• A. Income Statement
• B. Ratio Analysis
• C. Comparative Statements
• D. Cash Flow Statement

Hint:

Financial statements (Balance Sheet, Income Statement, Cash Flow Statement, Statement of Changes in Equity, Notes) provide the raw data. Tools of analysis (Comparative Statements, Common-Size Statements, Ratio Analysis, Cash Flow Analysis, Trend Analysis) are techniques used to interpret this data.

Answer 1

The Correct Option is A

To solve the problem, we need to evaluate the statements given and identify which of the options correctly classifies the tools used in financial statement analysis.

1. Understanding the Question:
We need to identify which of the following tools is not a part of the "Analysis of Financial Statements" as per the options provided.

2. Analyzing the Options:

• (A) Income Statement: The Income Statement is a fundamental financial statement that reports a company's financial performance over a specific accounting period. It is part of financial statement analysis, but it is not a "tool" used for analysis. Hence, it can be considered Incorrect as a tool of analysis.
• (B) Ratio Analysis: Ratio analysis is indeed a key tool in financial statement analysis. It involves analyzing various ratios derived from the financial statements to assess a company's performance. Hence, it is Correct.
• (C) Comparative Statements: Comparative Statements are often used in financial analysis to compare financial data over multiple periods. This is a tool used in analysis. Hence, Incorrect.
• (D) Cash Flow Statement: The Cash Flow Statement is another core financial statement, and it is used in financial analysis to assess the company's cash inflows and outflows. Hence, it is Incorrect as it is a tool of analysis.

3. Conclusion:
The correct answer is that the Income Statement is not a tool of Analysis of Financial Statements, as it is a financial statement used in analysis but not a method or tool for analysis.

Final Answer:
Correct Option: (A) Income Statement