Analysis and Interpretation of financial statements refers to the process of determining the significant operating and financial characteristics from the accounting data with a view to getting an insight into the activities of an enterprise.
While analysis is used to mean the simplification of data by methodical classification of data given in the financial statements, the term interpretation means explaining the meaning and significance of the data so simplified. However, analysis is useless without interpretation, and interpretation becomes difficult without analysis.
Based on the methods of analysis, it may be classified as horizontal vs. vertical analysis.
