Financial Statement Analysis

This essay stresses that financial statement analysis has its share of limitations. Some of the most significant include the manner by which financial statement may not always be accurate since it can be distorted by inflation or seasonal factors. There are also instances when it is difficult to compare and analyze data on account of the ambiguity in regard to what industry a firm belongs to or due to the sheer number of divisions being operated by a firm. Gapenski further pointed out that there is also a lack of universal accounting practices standards that makes comparison problematic. All in all, there are other weaknesses entailed in using this analytical method.
This paper makes a conclusion that financial statement analysis is important for organizations. This is particularly true in the case health care institutions today. Recent developments have significantly eroded their capability to generate profit. Being able to understand how bad the situation is for the organization allows managers to design corrective measures before it reaches crisis level. Being able to forecast opportunities and risks means better outcomes in terms of performance and profitability. Everything boils down to the importance of information. Financial statement analysis provides all the stakeholders the knowledge and, henceforth, the tools necessary to prevent the erosion of the firm’s financial health.