Question

Which of the following are the limitations of financial analysis?
a. Financial analysis does not consider price level.
b. Financial analysis is just a study of interim reports.
c. Financial analysis may be leading with the knowledge of the changes in accounting procedure followed by a firm.
d. Financial statements are prepared on the the basis of going concern concept.

• A. Both (a) and (b)
• B. Both (b) and (c)
• C. Both (c) and (d)
• D. Both (a) and (d)

Answer 1

Answer: (A)

Both (a) and (b)

Following are the limitations of the financial analysis:

1. Financial analysis does not consider price level changes.

2. Financial analysis may be misleading without the knowledge of the changes in accounting procedure followed by a firm.

3. Financial analysis is just a study of interim reports.

4. Monetary information alone is considered in financial analysis while non-monetary aspects are ignored.

5. The financial statements are prepared on the basis of on-going concept, as such, it does not reflect the current position.