From the course: Corporate Financial Statement Analysis
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Pitfalls of financial statement analysis
From the course: Corporate Financial Statement Analysis
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 that we need to be careful about. First, financial information is not all the value relevant information that's available about a firm. Second, financial statements from different companies are not sometimes comparable. For example, let's look at ExxonMobil, a big oil company, and Gazprom, the biggest natural gas company in the world. If we were to look at their reported operating cashflows, we would conclude that Gazprom, based in Russia, generated more cashflow from operations than did ExxonMobil, but it turns out that Gazprom uses international accounting standards. ExxonMobil was using the accounting standards applicable in the United States, so before we do comparisons of financial statements…
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