q show the limitations of ratio analysis a ratio


Q. Show the Limitations of ratio analysis ?

A ratio on its own is meaningless, accounting ratios must always be interpreted in relation to other information.  Ratios based on historic cost accounts do not give a true picture of trends, because of the effects of inflation and different accounting policies.  Investors' ratios particularly have a disadvantage, because investment means looking into the future and the past may not always be indicative of the future. Comparing the financial statements of similar businesses can also be misleading.

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