Financial Statement Analysis Limitations Many things can impact the calculation of ratios and make comparisons difficult. The limitations include: • The use of estimates in allocating costs to each period. The ratios will be as accurate as the estimates. • The cost principle is used to prepare financial statements. Financial data is not adjusted for price changes or inflation/deflation. • Companies have a choice of accounting methods (for example, inventory LIFO vs
This is the end of the preview.
access the rest of the document.