One of the limitations of financial analysis given below is:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → It is only a study of reports from the company.
Financial analysis works only on the figures a company reports in its financial statements. It cannot see beyond those reports, which is why being “just a study of reports of the company” is one of its limitations.
Why the other options are incorrect
Option (2) It assess the current profitability and operational efficiency of the firm as a whole as well as its different departments, to judge the financial health of the firm. — Incorrect. This is an objective of financial analysis, something it helps to do, not a limitation.
Option (3) It ascertain the relative importance of different components of the financial position of the firm. — Incorrect. Showing the relative importance of the components is again a use of the analysis.
Option (4) It identify the reasons for change in the profitability/financial position of the firm. — Incorrect. Finding the reasons for change is one of the analysis’s objectives, not one of its limits.
NCERT (2026-27 edition): |