Financial statement analysis is a powerful mechanism for determining the strengths and weaknesses of a firm. The analysis is based on the information available in the financial statements. The financial statement analysis suffers from serious inherent drawbacks; some of the serious limitations of the financial statements analysis are as follows:

1. Past performance, however good, is not the best predictor of future.

2. Financial Statement Analysis relies on information that must be timely and relevant. More outdated information makes the financial statement analysis more irrelevant.

3. Interim financial statements may be misleading and incomplete since they are unaudited and their reliability is reduced.

4. Financial analysis is based upon only monetary information and non-monetary factors are avoided.

5. Financial analysis does not consider changes in the price levels.

6. Financial statements are prepared on the basis of going concern, it does not give an exact position, thus accounting concepts and convention cause a serious limitation to financial analysis.

7. The changes in the accounting procedures may often make financial analysis misleading.

8. Analysis involves use of tools and techniques, the appropriate application of which govern the conclusions drawn. The application of techniques and tools can themselves limit the conclusions drawn.

9. Financial Statement Analysis involves the interpretation of data and information which, when subjected to personal bias results in wrong conclusions.

10. Financial Statement Analysis is not an end in itself but a means. The analyst has to make the interpretation and draw his own conclusions.

Some of the limitations of financial statements can be said to lend themselves as limitation to financial statement analysis.

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