|
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.
|
