Student Tips ( BBS 2nd year) Limitations of Ratio analysis The ratio analysis contributes a lot to portray the financial position of a business. But they suffer from various limitations. 1. Ratio analysis is related to the quantitative analysis only but not with qualitative analysis. 2. Ratio analysis is related to the financial statements. If the financial statements are wrongly prepared and ratios calculations from wrong data will be misleading. 3. Comparative operating efficiency during different period of the firm are also affected by changes in inflation, general price level and economy activity, but these factors are ignored in ratio analysis. 4. The financial statement can easily be window dressed for showing the better picture of financial position of the concern. The ratios of such window dressed statement do not provide a sound communication.
Posted on: Sun, 23 Jun 2013 04:10:16 +0000
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