Question

Describe atleast ten limitations of financial statements analysis

Answer 1

The following are the limitations,

1. It involves using of estimates and not actuals,
2. The tools used are based on majority acceptance but they are not realistic,
3. The analysis is performed based on accrual principle but it won't consider cash movement,
4. Time value of money is not given any importance,
5. It is done based on past data,
6. It won't take into consideration managerial ability and skills,
7. A change in business condition would impact financial ratios,
8. Inflation will also impact the results of financial statement analysis,
9. Change in accounting methods would also pose a threat for performing analysis,
10. Comparability problems.