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Limitations ratio analysis: cross-sectional, time-series

Discuss the limitations of ratio analysis and the cautions which must be taken when reviewing a cross-sectional and time-series analysis.

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Cross sectional analysis, looking at current period for multiple firms or areas of the business,

Ratios use financial statement data and those data can have misleading distortions such as one-time events and changes to the product mix. They are also summaries and so diverse actions can offset and not trigger an unusual ratio amount. For instance, one segment of the business can be ...

Solution Summary

Your discussion is 251 words and mentioned four major limitations.