Assumptions behind financial statements

Financial Statements are generally prepared on Accrual basis of accounting.

Accrual Basis: Effects of transactions are recorded as and when they occur, irrespective of whether cash inflow or outflow happens. For example, if goods are purchased on Credit, the same is recorded as a purchase when the delivery from Vendor occurs, though the cash outflow may happen after the credit period.

Going Concern: Financial statements are normally prepared on the assumption that the Enterprise is a going concern and will continue operation for the foreseeable future. Read more

March 15, 2009 | Filed Under Fundamental Analysis | 1 Comment

Limitations of Financial Statements

Limitations of financial statements

Financial statements provide financial statistics of past events; but they are not forward looking.

They don’t 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. Read more