| (i) How the earning capacity of a business is assessed by financial statement analysis. |
| (ii) How does subjectivity become a limitation of financial statement analysis. |
Answer:
(i) The earning capacity of a business is assessed by financial statement analysis through profitability ratios. (ii) Subjectivity becomes a limitation of financial statement analysis because an analyst has to exercise his own judgement and bias in the process of drawing conclusions.
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