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Explain the limitations of using the profit after tax

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Reference no: EM132830972

A good friend of yours is planning to invest in listed companies by acquiring shares from the open market. He based his decision on the profit after tax (net income) figure from the companies' latest annual reports. He believes that a company with a good profit after tax figure in the latest annual report should be a sound company. After finding out that you are currently taking an accountancy undergraduate program, he asked for your opinion.

Problem 1: Explain to your friend the limitations of using the profit after tax (net income) of the latest annual report as a key parameter to make an investment decision.

Reference no: EM132830972

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