Answer to Question #53102 in Management for Godvictor

Question

Discuss the limitations of financial ratios in using them to evaluate business

Answer 1

The main limitation is connected with fact that ratios give us understanding of business for current moment of time. They do not show how business behaves.
Some ratios can be calculated and be equal for companies that have absolutely different absolute values.
The appropriate level for each ratio is defined, but still can be different from business to business. Thus businesses can`t be comparable using ratios.