... numerous problems inherent in the balance sheet presentation and may cause difficulty in analysis. First, most assets are valued at cost; thus, one cannot determine the market value or replacement cost of many assets and should not assume that their balance sheet value approximates this current valuation. Secondly, varying methods are used for valuation of assets both in short and long-term asset valuation. A third and different type of problems exists in that not all items of value to the firm are included as assets. For example, such characteristics as good employees, outstanding management, and a well-chosen location do not appear on the balance sheet. In the same vein, liabilities relate to pensions and contingencies may also appear on the balance sheet. These problems do not make statement analysis impossible. They merely imply that qualitative judgement must be applied to quantitative ratio and trend analyses, in order to incorporate the ...

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