Limitation of Ratio Analyses

Limitation of Ratio Analyses

1. Deals in Past :- one of the major limitation of ration analyses is that this deal in past . The ratio is calculated from the historical data and interpretation is related to past. The ratio analyses does not give any information about future and therefore cannot be used for future decision making.

2. Dependence on comparison :- The ratio are highly depends on the availability of comparative information . The past comparative information or industry comparative information.

3.  Difficult to understand :- some ratio are very difficult to understand by a common man and specialized knowledge is required.

4. Complexity in Calculation :- Some ratio are difficult to calculate and only finance manager with appropriate financial knowledge and skill can calculate those ratios. Furthermore the interpretation of ratio is far more difficult than calculation.