Which of the following statements is true about financial analysis?

Financial analysis is fundamentally concerned with examining data from the past, which includes evaluating historical financial statements, trends, and performance metrics. This focus on historical data allows analysts to identify patterns and make informed predictions about future performance, even if it doesn't guarantee precise forecasts. While past financial performance is utilized as a basis for understanding the current financial health of an entity, this historical overview helps inform future projections and strategic decisions.

This emphasis on history is essential because many financial metrics, such as revenue growth, profitability ratios, and cost management, are derived from past performance. By analyzing this data, analysts can gauge how a company has responded to various economic conditions or management strategies in the past, thereby gaining insights that aid in future planning.

In contrast, other options present limitations or mischaracterizations of financial analysis. While forecasting future cash flows is a component of financial analysis, it is inherently uncertain and cannot be done with complete accuracy. Financial analysis also incorporates both historical and current data rather than being exclusive to current figures alone. Finally, while analysis can offer valuable insights, it does not always yield definitive answers due to the complexities of financial markets and the influence of unpredictable factors.