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NISM Certifications · NISM-Series-XV: Research Analyst · Fundamentals of Research

Which of the following is a limitation of relying solely on historical financial data when preparing a research report on a company?

The key limitation is that past performance may not reflect future conditions. Listed companies publish audited historical data in monetary terms, but changes in competition, regulation, technology or strategy can make past trends unreliable, so analysts must adjust their forecasts for expected changes.

  1. APast performance may not reflect future conditionsCorrect
  2. BHistorical data is never available for listed companies
  3. CHistorical data cannot be audited
  4. DHistorical data is not expressed in monetary terms

Explanation

Historical data is available and audited for listed firms, but changes in competition, regulation or strategy can make the past a poor guide to the future, so forecasts must adjust for expected changes.

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