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Limitations of Financial Statement Analysis

Following of main limitations of financial statement analysis :

1. It is just study of interim reports.

2. It check just monetary aspect of company's performance and position but it ignores non-monetary aspect of company.

3. It does not analyze the changes in price level of different items of financial statements.

4. Many accounting concepts and conventions are used for preparing financial statement and these concepts and conventions are accepted for analysis. So, analysis is totally affected with these accounting concepts.

5. Analysis of financial statements are just source but not decision or result because person who write its interpretation, may also affect the analysis. So, different interpretation by different person may become its limitation.

6. LIFO vs FIFO and different depreciation methods usage may bring difference in result and performance of financial statement, so it is also limitation of financial statement analysis.

7. If one company's accounting period completes at 31st Dec. and other company's accounting period completes at 31st march, we will unable to compare both company's financial statement and it will be the limitation of financial statement analysis.

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Accounting Education: Limitations of Financial Statement Analysis
Limitations of Financial Statement Analysis
Accounting Education
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