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State five limitations of using ratios.

      

State five limitations of using ratios.

  

Answers


Simon
• It is difficult to compare firms of different sizes, levels of technology and diversification using ratios.
• Ratios are computed from past statements thus giving historical information which may be irrelevant in future decision making.
• Ratios keeps on changing.
• Ratios concentrates on the quantitative and industrial analysis of a firm and ignore important qualitative features of a firm.
• Ratios do not consider the effects of inflation on the performance of a firm.
• Different firms in the same industry use different policies and bases. It is difficult to use ratios to compare these firms.

skilled writter answered the question on May 3, 2018 at 17:11


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