Notable limitations or disadvantages of financial statement analysis can be expressed as follows:
1. Ignores Qualitative Aspect
Financial statement analysis checks only quantitative or monetary aspect of the business. It totally ignores qualitative aspect.
2. Historical Data
Financial statement analysis is done with the help of historical financial data provided by financial statements. So, it may not be a base or indicator for future estimation, planning, forecasting and decision making.
3. Biasness
Financial statement analysis may suffer from the biasness of the analysts. This may mislead the users.
4. Does Not Provide Solution
Financial statement analysis only identifies the finance related problems of the company. It fails to suggest the solutions.
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5. Difficult To Compare
Different companies may follow different accounting principles (like different depreciation methods, LIFO method, FIFO method etc). In this situation it is impossible to compare different financial statement accurately.
6. Price Level Change
Effect of price level change cannot be adjusted in financial statement analysis.
