What are the Limitations of Analysis of Financial Statement?

1.	What are the Limitations of Analysis of Financial Statement?
Answer» Financial Analysis Help the Interested Parties to make an Assessment of the Earning Capacity and Financial Soundness of a Business Enterprise. But such Analysis has its Own Limitations. Such Limitations should be kept in mind while using the information provided by the Financial Analysis . Some of the Limitations of Analysis of Financial Statement are : (i) Difficulty in Forecasting. (ii) Lack of Qualitative Analysis. (iii) Affected by Window Dressing. (iv) Different Accounting Policies . (v) Do Not Reflect Changes in Price Level . (vi) Effect of Personal Ability and Bias of the Analyst . (vii) Limited Use of Single Year's Analysis of Financial Statements .

Answer»

Financial Analysis Help the Interested Parties to make an Assessment of the Earning Capacity and Financial Soundness of a Business Enterprise. But such Analysis has its Own Limitations. Such Limitations should be kept in mind while using the information provided by the Financial Analysis .

Some of the Limitations of Analysis of Financial Statement are :

(i) Difficulty in Forecasting.

(ii) Lack of Qualitative Analysis.

(iii) Affected by Window Dressing.

(iv) Different Accounting Policies .

(v) Do Not Reflect Changes in Price Level .

(vi) Effect of Personal Ability and Bias of the Analyst .

(vii) Limited Use of Single Year's Analysis of Financial Statements .

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