apf- analisy
What are the potential problems and limitations of financial ratio analysis? '1 ' ' 'Limitations of financial ratio analysis ' ' ' ' ' # Many ratios are calculated on the basis of the balance-sheet figures. These figures are as on the balance-sheet date only and may not be indicative of the year-round position. # 2 Comparing the ratios with past trends and with competitors may not give correct picture as the figures may not be easily comparable due to the difference in accounting policies, accounting period etc. # It gives current and past trends, but not future trends. # Impact of inflation is not properly reflected, as many figures are taken at historical numbers, several years old. #There are differences in approach among financial analysts on how to treat certain items, how to interpret ratios etc. # The ratios are only as good or bad as the underlying information used to calculate them. Although ratio analysis is very important tool to judge the company 's performance , following are the limitations of it.1. Ratios are tools of quantitativeanalysis, which ignore
Some of the Many Limitations of Financial Statement Analysis
By Steven Kozack and Michael C. Dennis, MBA, CBF
These are some of the limitations of financial analysis that credit managers must be aware of when they are reviewing a customers financial statements:
Past financial performance, good or bad, is not necessarily an accurate predictor of future performance.
Financial statements do not tell you about changes in senior management.
Financial statements do not tell you about the loss of major customers.
Financial statements do not tell you about the competitive environment in which the company operates.
Financial statements do not disclose the companys future prospects, or the results of its expenditures on Research and Development, or new product introductions, or new marketing campaigns, or new pricing strategies, or the customers recent decision to enter or exit a particular
Some of the Many Limitations of Financial Statement Analysis
By Steven Kozack and Michael C. Dennis, MBA, CBF
These are some of the limitations of financial analysis that credit managers must be aware of when they are reviewing a customers financial statements:
Past financial performance, good or bad, is not necessarily an accurate predictor of future performance.
Financial statements do not tell you about changes in senior management.
Financial statements do not tell you about the loss of major customers.
Financial statements do not tell you about the competitive environment in which the company operates.
Financial statements do not disclose the companys future prospects, or the results of its expenditures on Research and Development, or new product introductions, or new marketing campaigns, or new pricing strategies, or the customers recent decision to enter or exit a particular
Links: Book and article recommendations: Professor Van Horne drew his account of Insull Utility Investments from Frederick Lewis Allen 's Lords of Creation, New York, London: Harper & Brothers, 1935. Creative Accounting Dot-Com, The Wall Street Journal, July 24, 2000 Deciphering the Black Box,The Wall Street Journal, Jan