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Thursday, April 14, 2011

Limitations of Financial Ratio Analysis

Following are some of the limitations of Financial Ratio Analysis:

1) Ratio analysis indicates only the areas of strengths and weaknesses, without investigating the causes.

2) Different companies can apply different accounting policies. Thus the ratio of one company can not always be compared with that of another company.

3) Ratios are calculated based on outdated information presented in the


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