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financial statement
Definition
A writtenreport which quantitatively describes the financial health of acompany. This includes
an income statement and a balance sheet, and often also includes a cash flow statement.
Financial statements are usually compiled on a quarterlyand annual basis.
Limitations of financial statements
Financial statements provide financial statistics of past events; but they are not forward looking.
They don\u2019t provide key non-financial information like quality of revenues, types of customers
and risk factors.

Certain qualitative elements are not considered in the financial statements terms like the quality
and reputation of the management team and employees because they are incapable of being
measured in monetary terms.

The figures provided in financial statements can\u2019t be attributed to future since future earnings
depend on many more factors like local and global market conditions, inflation etc.
Limitations of Analysis of Financial Statements are;
(i)

Limitations of Financial Statements: Financial Statements are the basis f financial analysis. Hence, the limitations of financial statements, such as influence of accounting concepts and conventions, personal judger disclosure of only monetary events, etc., are also the limitations of analysis and financial statements.

(ii) Ignores the Price-Level, Changes: Financial analysis fails to disclose current worth of the enterprise, since it is based on .financial statements, which are merely a record of historical cost.

(iii) Not. Free from Bias: In many situations, the accountant has to make a choice out of various alternatives available, e.g., choice in the method of depreciation choice in the method of inventory valuation. Since, the subjectivity is interest in personal

judgment, the financial statements are therefore not free from bias. As a result,
financial analysis also cannot be said to be free from bias.
(iv)

Window Dressing: The term window dressing means presentation of account that
conceals vital facts and showing better position than what it actually is. On account of such a
situation, financial analysis may not be a definite indicator of good or bad management

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