From the course: Corporate Financial Statement Analysis

Unlock this course with a free trial

Join today to access over 25,200 courses taught by industry experts.

Avoid common pitfalls of financial statement analysis

Avoid common pitfalls of financial statement analysis

From the course: Corporate Financial Statement Analysis

Start my 1-month free trial Buy for my team

Avoid common pitfalls of financial statement analysis

“

All right, we have to be careful now. There are potential pitfalls associated with financial statement analysis, and we've got to be aware of those pitfalls so that we can carefully do our analysis and carefully apply our results. I can think of four things right off the top of my head. The first is that financial information is not all the value-relevant information that's available about a firm. Unfortunately, financial statements from different companies are sometimes not comparable. We'll take a look at a couple of examples of that. The third common mistake is we always seem to be searching for one problem when it could be that there's a multitude of reasons a company is doing very well or very poorly. And then the fourth common mistake with financial ratio analysis is we weigh information differently. We either look at history too much, the distant past too much, or we anchor on the recent past. We have got to be careful when we're using information. We've got to apply it…

Contents