What are the limitations of ratio analysis

• Limitations of the analytical process need to be considered when interpreting and relying on the ratios to form an opinion as to a firm’s financial health, both past and present
• Limitations relate to the nature of the financial statements and the data disclosed (or not disclosed), while others are inherent in the nature of the financial ratios themselves
• Ratio analysis is only one financial analysis tool
• Comprehensive and effective financial analysis considers information beyond financial reported numbers
• Non-financial considerations, such as environmental performance, are also taken into consideration by users when assessing an entity’s performance

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