Week 3 - DQ 1 - What are the limitations of using ratios for financial statement analysis. What are

Week 3 - DQ 1 - What are the limitations of using ratios for financial statement analysis. What are

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Week 3 – DQ 1 What are the limitations of using ratios for financial statement analysis? What are the benefits? Do different user groups focus on different ratios? Why? Which ratios would you use to analyze a company? Why? What are the limitations of using ratios for financial statement analysis? What are the benefits? Response #1 Limitations of Ratios Analysis: 1. Limitations of financial statement analysis are based only on the information which has been recorded in the financial statements. 2. Comparative study required are useful in judging the efficiency of the business only when they are compared with the past results of the business. 3. Ratios are only indicators they should not be taken as final regarding a good or bad financial position of a business. 4. Problems of level pricing changes can affect the validity of ratios calculated for different time periods. 5. Lack of inadequate standard which means no fixed standard can be used for ideal ratios. 6. Limited use of single ratios does not convey much sense.
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Week 3 - DQ 1 - What are the limitations of using ratios for financial statement analysis. What are

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