Hi,

Need help here to interprete the limitations of financial ratio and need examples... thank you

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While financial ratio analysis can provide us with important insight into a company's performance, a good financial analyst will be aware that there are some important limitations that should be noted when using financial ratios as an analytical tool in financial modeling.

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A few examples of limitations:

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* Ratio analysis is a retrospective, not prospective examination.

* Ratio analysis is based on accounting not economic data.

* Ratios don't capture significant off-balance sheet items.

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Source: Financial Modeling Guide