Financial Management: Limitations of Ratio Analysis

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Introduction
This report is designed for developing knowledge about different limitations of ratio analysis technique for evaluation of a company's financial health and future prospects. It will also provide different ways or suggestions that can be adopted for overcoming the limitations of ratio analysis.

Ratio Analysis:
Ratio analysis can be defined as the quantitative analysis technique that is taken into account for evaluating the financial performance of a company based on its financial statements. The income statement and balance sheet are the two financial statements that are most commonly used for conducting ratio analysis on a company (Bragg, 2012). Ratio analysis techniques establish the relationship between two or more items of financial statements. The financial ratios can be categories into different categories such as market value ratios, liquidity ratios, profitability ratios and leverage ratios.

Limitations of Ratio ...