Analysis of Financial Statements

What are some potential problems and limitations to financial analysis? What are some qualitative factors analysts should consider when evaluating a company's likely future financial performance.

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...sts" (Collier, 2006, p. 234).

Accounting practices can aid a manager's success by concentrating on the controllable profit. This means that only the expenses that can be controlled by the divisional manager should be deducted from the divisional profit report, instead of including all "expenses that are outside the divisional manager's control" (Collier, 2006, p. 234). Therefore, the investment value should be determined by the total assets less controllable liabilities and, of course, with fixed assets at the beginning of the period.

Analysts should not only take into consideration the quantitative value, but also the qualitative values that are contributed by the employees to the company's likely future financial performance. This is when lean manufacturing comes into play. Maddy (2007) stated that roughly 95% of activities in a workplace are wastes. These wastes consist of, but not limited to, over-production, transportation, and over-processing. Lean ...