Disadvantages of Ratio Analysis?

Answer

Ratio analysis is a means by which someone can analyze their financial statements for the current year and create a ratio to that of the prior year to see where they stand. Though this is a useful tool, it does have some disadvantages. In many cases, a ratio analysis between two entities does not yield any useful information due to differences in accounting structure. Differences in accounting procedure can also have an effect on the ratio. These ratios only deal with past information, they do not help to predict future financial details.
Q&A Related to "Disadvantages of Ratio Analysis?"
Ratio analysis is a strong indicator of the financial performance of a company over time. An analyst can calculate the same ratio across different time periods to identify particular
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Investors or lenders, usually use a ratio analysis to interpret the relationship between financial variables. It's usually used to draw opinions about a company's financial state,
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Can get expensive. Needs certain special skills and lots of training to be able to do it. It can only give results which can be compared to those we already have. Hope this helps
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Ratio analysis is an accounting technique used to compare one figure with another figure. Disadvantages: Do not take external factors into account.
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Explore this Topic
When one uses ratio analysis, it means they are using past financial documents and current ones to form a ratio of their current financial health. This can be ...
Ratio analysis is a strong indicator of the financial performance of a company over time. An analyst can calculate the same ratio across different time periods ...
The advantages of a financial ratio analysis of a firm are trend analysis, and comparison of performance between firms and companies. Comparison data between firms ...
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