Advantages of Financial Statement Analysis
* the investors get enough idea to decide about the investments of their funds in the specific
company
* regulators authorities such as IASB can ensure whether the company following
accounting standard or not
* financial statements analysis can help the government agencies to analyze the taxation due to
company
* company can analyze its own performance over the period of time through financial statement
analysis
Limitation of Financial Statement Analysis
* the comparability of financial data between companies
reason:
the differences in accounting method between companies' financial data
i.e if one firm values its inventories by LIFO method and another firm by
the average cost method, then the direct comparison of financial data
such as inventory valuations and cost of goods sold between
the two firms may be misleading.
* the need to look beyond ratios
reason:
Conclusion based on ratios analysis must be regarded as tentative. Ratios should not be
viewed as an end, but rather they should be viewed as starting point, as indicators of
what to pursue in greater depth
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