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Is this a balance sheet limitation? -> the balance sheet can't be utilized to analyze company...

Is this a balance sheet limitation? -> the balance sheet can't be utilized to analyze company risk as well as FCFs?

FCFs=future cash flows

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Answer #1

The Balance Sheet of an organization contains a total of its assets and liabilities. To analyze the company's risk, one needs to take various financial ratios like Price-earning ratio, earnings per share, earnings before interest, debt and tax ratio and many other ratios. For computing different types of ratios, the information of revenues and expenses of the company is also needed, which will be available from its Profit & Loss A/c or Income Statement. Also for analyzing company's FCFs, we need to have information regarding company's decisions and future decisions. All these can be derived from the Audit Report and minutes of the various meetings held by the company. Therefore, we can conclude that it is a limitation of Balance Sheet that it alone can't be utilized to analyze company risk as well as FCFs.  

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