The following points highlight the five major limitations of financial ratios. 1. Accounting ratios are based on accounting figures given in the financial statements. However, accounting figures are themselves subject to deficiencies, approximations, diversity in practice or even manipulation to some extent. Therefore, ratios are not very helpful in drawing reliable conclusions. 2. Accounting ratios have inherent problem of comparability. [...]
In this article we will discuss about Financial Statement Analysis:- 1. Meaning of Financial Statement Analysis 2. Objectives of Financial Statement Analysis 3. Techniques. Meaning of Financial Statement Analysis: Financial Statement Analysis is an analysis which highlights important relationships in the financial statements. Financial Statement analysis embraces the methods used in assessing and interpreting the results of past performance and [...]
The following points highlight the six main analysis made while making financial statement analysis. 1. Liquidity or Short-Term Solvency Analysis (Or Ratios): Liquidity or short-term solvency analysis aims to determine the ability of a business to meet its financial obligations during the short-term and to maintain its short-term debt-paying ability. The aim of liquidity analysis is for a company to [...]