Question

What is the basic problem with using financial statement analysis to measure performance of a firm's...

What is the basic problem with using financial statement analysis to measure performance of a firm's financial management?

Multiple Choice

  • There is no underlying theory to set guidelines for benchmarks on the measures.

  • Different firms may follow different fiscal periods.

  • There may not be any reasonable peer group for global conglomerates with which comparisons can be made based on financial analysis measures.

  • Different firms may use different accounting procedures which produce financial statements that are not directly comparable.

  • Some companies have operations in more than one industry and therefore no single comparable peer group.

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Homework Answers

Answer #1

The financial statement analysis helps to meausre the performance of a firm with the help of 3 financial statements like balance sheet, income statement and the cash flow statement.

The basic problem underlying the financial statements is the lack of comparibility. Different firms may use different accounting periods which produce financial statements that are not comparable. So, the lack of comparibility is the biggets problem of the financial statements analysis.

So, the correct option is option 4.

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