Limitations Of Ratio Analysis

Although ratio analysis is very important tool to judge the company's performance , following are the limitations of it.

1. Ratios are tools of quantitative analysis, which ignore qualitative points of view.

2. Ratios are generally distorted by inflation.

3. Ratios give false result, if they are calculated from incorrect accounting data.

4. Ratios are calculated on the basis of past data. Therefore, they do not provide complete information for future forecasting.

5. Ratios may be misleading, if they are based on false or window-dressed accounting information.


  1. Ratios form the base of financial management and its essential to understand the limitations of ratios. Good article, thanks.

  2. Nice post. Ratio play a vital role to understand the exact financial situation of company. Thanks for explaining about the limitations of ratio analysis.

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  3. thanks for giving limitation it helped me in my acconting exam