Q24RQ - Horngren'S Financial And Managerial Accounting

Question

What are some limitations of financial performance measures?

Step-by-Step Solution

Answer

Measurement problems and a short-term concentration are two drawbacks of financial performance measurements.

Step 1: Meaning of financial performance

The overall financial health of a business is referred to as financial performance. Investors care about financial performance almost as much as they use it to choose whether to buy or offer a company's stocks and bonds.

Step 2: Limitations of financial performance measures

Limitation of Performance measurement

1. It could result in lower production levels.
2. Communication may become challenging as a result.
3. It could result in a lack of dedication between the workforce. 
4. It continues to be evaluated subjectively.