What do you understand by analysis and interpretation of financial statement?
Analysis of financial statement means using the data in the
financial statements to perform further calculations and analysis,
like ratio analysis, trend analysis, industry comparison,
horizontal and vertical analysis, etc. Analysis is useful to
understand historical transactions and also to estimate future
prospects.
Interpretation of financial statement is basically is drawing
meaningful conclusions and judgment based on the results of basic
or detailed analysis.
Example: Profitability analysis shows that the company has made
profit for the last 5 years consistently. Interpretation of this
analysis will lead to the conclusion that the probability of the
company produce profits in next year is high.