What are the limitations of Ratio Analysis?

What are the limitations of Ratio Analysis?

- The basic limitation of ratio analysis is that it may be difficult to find a basis for making the comparisons.

- Ratios ignore qualitative point of view as they are tools of quantitative analysis.

- Ratios are calculated on the historical financial statements.

- Ratios are generally distorted by inflation.

- Only those facts are considered by ratio analysis which can be expressed in financial terms.

- Ratios may be misleading if they are based on false accounting information.

- It only highlights problem areas but it does not provide any solution to rectify the problem areas.

- Different accounting procedures used.

- Effect of inherent limitation of accounting.
What precautions should be taken before using Ratio Analysis as a technique for interpretation of financial statements?
Reliability of the financial statements should be checked first as the ratio analysis is based on financial statements….
What are the different groups under which ratios are classified?
The ratios can be classified under following different groups:…
What are the different benchmarks against which Ratios are compared?
The different benchmarks against which ratios are compared as follows:…
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