Limitations of financial index analysis

(A) the subjective limitations of financial indicators analysis The financial indicators system is to help users of financial statements better understand and master the production and operation of an enterprise. However, because financial statements are compiled by financial personnel of enterprises according to relevant laws, regulations and standards, it is inevitable that some human errors and mistakes will occur, and even malicious concealment will directly affect the analysis results.

(1) Limitation of analyst's analytical ability

The analysis and evaluation of enterprise financial statements are usually done by report analysts. However, different financial analysts have different understanding, interpretation and judgment of financial statements, as well as the depth and breadth of mastering financial analysis theories and methods, and the understanding results of financial analysis and calculation indicators are also different. If you lack practical experience, it is likely to lead to misunderstanding, which will definitely affect the analysis results of financial indicators.

(2) Analysts deliberately manipulate financial indicators.

The information quality of financial statement data is subject to the professional ethics of enterprise management authorities. As we all know, enterprises aim at making profits. However, there are various ways to make profits. Some people seek benefits through proper operation, while others seek benefits through other operations.

(II) Objective Limitations of Financial Indicators Analysis In the actual business process, the commonly used indicators are mainly to evaluate the short-term solvency and profitability of enterprises.

(1) Limit of short-term solvency index

The short-term solvency of an enterprise refers to its ability to realize assets and repay current liabilities before the short-term debt expires. Short-term solvency indicators are divided into current ratio indicators and quick ratio indicators. Because current assets can generally be converted into cash in a short period of time, it is reasonable to use current ratio and quick ratio to reflect the short-term solvency of enterprises. However, if we simply judge the short-term solvency of enterprises based on these two ratio indicators, there will inevitably be deviations, which is also the inherent defect of short-term solvency.

(2) the limitations of important financial indicators of profitability

For listed companies, the most important financial indicators are earnings per share, net assets per share and return on net assets. However, people should also pay attention to their limitations when using these financial indicators.

1, limitations of earnings per share

Earnings per share = net profit this year/total number of ordinary shares at the end of the year, which indicates the profit of ordinary shares this year and is an important ratio index to measure the profitability of the company. When calculating this ratio, the numerator is the net profit of this year, the denominator is the total number of ordinary shares at the end of the year, one is the period indicator and the other is the time point indicator, so the calculation caliber of numerator and denominator is not exactly the same. Earnings per share can not reflect the size of the company's operating risk, and the risk often increases with the increase of earnings.

2. Restrictions on net assets per share

Net assets per share = year-end shareholders' equity (or net assets at the end of the year)/number of ordinary shares at the end of the year, indicating the shareholders' equity or book equity represented by each ordinary share issued to the outside world. In investment analysis, this indicator can only be used in a limited way, because it is measured by historical cost, which can neither reflect the realized value of net assets nor reflect the output capacity of net assets.

3. limitations of 3.ROE.

This indicator is used to reflect the income level of owners' equity, and its calculation formula has two forms: one is ROE = net profit/year-end shareholders' equity, and the other is ROE = net profit/average net assets. In order to improve the accuracy of the calculation results, the weighted average of net assets should be used as the calculation basis, but it is too complicated. From the point of view of simplifying calculation, it seems more reasonable to use the average of net assets at the beginning and end of the year as the denominator, compared with the current net profit of the numerator.