Financial reports provide insight into a company's performance and can help you decide whether to lend money to a company or invest in it.

The three main financial reports are the balance sheet (also called the balance sheet), the income statement, and the cash flow statement.

A quick glance at these financial reports will tell you:
(1) Are sales increasing or decreasing?
(2) Is the company profitable?
(3) Is the company heavily indebted?
(4) What are the company’s sources of cash?

By looking a little deeper into the financial reports (for example, by conducting a ratio analysis), you can answer questions like:
(a) How long does it take the company to sell its inventory?
(b) How much profit does the company make per $100 of sales?
(c) Does the company spend more on research and development as a percentage of its sales relative to its competitors?

A more detailed analysis of financial statements can tell you:
(i) Why does ROA (or ROE) increase or decrease?
(ii) Why did the company’s net profit increase or decrease?
(iii) Has the company manipulated its financial reports?

To analyze the financial statements we can use the following tools:
-vertical analysis (financial reports in uniform size)
-horizontal analysis (trend and percentage change in financial reports)
-Cause analysis of the change
-Ratio Analysis
-DuPont analysis for ROA/ROE
-Quality of returns (tamper detection)
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