Practicing Success
Identify the statement which is not the limitation of the Financial Analysis. |
Financial Analysis considers price level changes Financial Analysis does not consider price level changes Financial statement does not reflect the current position Only monetary information is considered in financial statements |
Financial Analysis considers price level changes |
The correct answer is Option (1) - Financial Analysis considers price level changes. Though financial analysis is quite helpful in determining financial strengths and weaknesses of a firm, it is based on the information available in financial statements. As such, the financial analysis also suffers from various limitations of financial statements. Hence, the analyst must be conscious of the impact of price level changes, window dressing of financial statements, changes in accounting policies of a firm, accounting concepts and conventions, personal judgement, etc. Some other limitations of financial analysis are: |