- 2 Marks
Question
State TWO (2) limitations of ratios.
Answer
- Ratios ignore qualitative aspects of the firm.
- Ratios ignore the price level changes due to inflation.
- There is no standard definition of the ratios.
- Differences in accounting policies may make ratios difficult to compare from company to company.
- Creative accounting practices may make ratios meaningless.
(Any 2 points @ 1 mark each = 2 marks)
- Topic: Financial Analysis, Financial Ratios, Limitations
- Series: NOV 2023
- Uploader: Cheoli