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Limitations of ratio analysis

I already know the different types of ratios and what they are. I need this question answered with just one or two paragraphs. Please list references if you are using them.

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Ratio analysis can also help us to check whether a business is doing better this year than it was last year; and it can tell us if our business is doing better or worse than other businesses doing and selling the same things. In other words it helps in inter firm and intra firm comparision.
We can use ratio analysis to try to tell us whether the business

1. is profitable
2. has enough money to pay its bills
3. could be paying its employees higher wages
4. is paying its share of tax
5. is using its assets efficiently
6. has a gearing problem
7. is a candidate for being bought by another company or investor

Though ratio has its ...

Solution Summary

This explains the limitations of ratio analysis

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