While financial statements analysis is an essential tool for evaluating a company’s economic and financial performance, it has its limitations, like…
Historical Data
Financial statements analysis is based on historical data, which may not be a reliable indicator of future performance
Industry Differences
Different industries have different accounting practices, making it difficult to compare companies in different industries
Non–Financial Factors
Financial statements analysis does not take into account non–financial factors that may impact a company’s financial health, such as changes in management, industry trends, or economic conditions
Misleading Ratios
Financial ratios can be misleading if they are not analyzed in the proper context → For example, a company with a high debt–to–equity ratio may not be a cause for concern if it has a stable cash flow and the debt is being used to finance growth opportunities
Manipulation
Financial statements can be manipulated, intentionally or unintentionally, which can result in inaccurate analysis
📚🤔 Check out our Guides 🤓➔ Read them FOR FREE on Kindle Unlimited:
➔ Reading a BALANCE SHEET +QUIZ: CLICK HERE
➔ FINANCIAL VALUATION: CLICK HERE
➔ Reading PROFIT & LOSS: CLICK HERE
➔ Analyze FINANCIAL RATIOS: CLICK HERE
Find much more in our E-BOOKS PAGE.
Comments