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    gkloon's Avatar
    gkloon Posts: 1, Reputation: 1
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    #1

    Nov 2, 2005, 06:01 AM
    Limitations of financial ratio and examples
    Hi,

    Need help here to interprete the limitations of financial ratio and need examples... thank you
    CliffARobinson's Avatar
    CliffARobinson Posts: 1,416, Reputation: 101
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    #2

    Mar 16, 2012, 04:48 PM
    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.
    A few examples of limitations:
    * 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.
    Source: Financial Modeling Guide

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