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.