Financial statements are prepared on the basis of rules and as per Companies Act 2013. Different stages are developed for the analysis of financial statements due to which organised and scientific analysis can be done.

These stages are as under :

1. New structural arrangement of financial statements: Based on the legal provisions, analysis of financial statements are done with the help of comparative statements, ratio analysis, common size statements etc. The information disclosed in financial statements is reclassified and rearranged to undertake use of these tools, eg. to know the trend of net profit of last five years, the net profit rate is used. For this analysis sales and profit of last five years is considered.

2. Comparison: in the second stage of financial analysis, reclassified and rearranged information is compared. Here, the results of the second year with the third year, of the third year with the fourth year etc. can be compared. Analysis and interpretation is done on the basis of comparison.

3. Analysis and Interpretation: Analysis means appropriate examination or evaluation of information, where information is categorised into different components and their relationship is tested. Interpretation gives explanation of this relationship, e.g. In the net profit trend, generally increase in the sales leads to the increase in net profit.