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.