Which statements are true-

(A) The financial statements of a business enterprise include cash flow statement.

(B) Comparative statements are the form of horizontal analysis.

(C) Ratio analysis help business in identifying the problem areas.

(D) Financial analysis is used only by the creditors.

Choose the correct answer from the options given below:

Analysis of Each Statement

Statement (A): The financial statements of a business enterprise include cash flow statement

This is TRUE. The complete set of financial statements includes:

• Balance Sheet
• Statement of Profit and Loss
• Cash Flow Statement
• Notes to Accounts

As per AS-3, Cash Flow Statement is a mandatory part of financial statements for companies.

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Statement (B): Comparative statements are the form of horizontal analysis

This is TRUE. Horizontal analysis involves comparison of financial data across different time periods (year-to-year comparison). Comparative statements present financial information of two or more periods side by side, showing absolute figures, changes, and percentages. This makes it a classic form of horizontal analysis.

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Statement (C): Ratio analysis help business in identifying the problem areas

This is TRUE. Ratio analysis serves multiple purposes:

• Identifies weak areas like poor liquidity, declining profitability
• Highlights operational inefficiencies
• Compares performance with industry standards
• Reveals unfavorable trends

Therefore, it is an effective tool for problem identification.

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Statement (D): Financial analysis is used only by the creditors

This is FALSE. Financial analysis is used by various stakeholders:

• Management → for decision-making
• Investors → for investment decisions
• Creditors → for lending decisions
• Government → for taxation and regulation
• Employees → for job security assessment
• Researchers → for academic purposes

The word "only" makes this statement incorrect.

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Conclusion

Statements (A), (B) and (C) are true, while (D) is false.

Correct Answer: Option 1