What is financial statement analysis?

Financial statement analysis involves examining a company's financial statements—such as the income statement, balance sheet, and cash flow statement—to assess its financial performance and health. This analysis allows stakeholders, including managers, investors, and creditors, to understand the company's profitability, liquidity, solvency, and operational efficiency. By analyzing these statements, one can compare financial results over time or against industry benchmarks, helping to identify trends, strengths, weaknesses, and areas for improvement.

The other options focus on different aspects of business operations rather than the interpretation and assessment of financial performance. Preparing tax returns is a compliance-related activity, conducting market research relates to product development strategies, and creating employee compensation plans is focused on human resources. None of these choices provide the same insights into financial health that financial statement analysis delivers.