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Outline four limitations of the use of ratios as a basis of financial analysis.

      

Outline four limitations of the use of ratios as a basis of financial analysis.

  

Answers


Martin
Limitations of ratios

- They are based on historical data
- They are easy to manipulate due to different accounting policies adapted by the firms
- They are only quantitative measures but ignore qualitative issues such as quality of service,
technological innovations etc
- They constantly change hence are computed at one point in time e.g. liquidity ratios
change now and then
- They don?t incorporate the effect of inflation
- They don?t have standard computational purposes, firms are of different sizes
marto answered the question on February 11, 2019 at 09:17


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