Question

Ratio analysis provide invaluable information about a corporations financial condition and their operations. That being said, ratio analysis also has it's limitations. Discuss the uses and the limitations of ratio analysis and how you believe technology can possible change the way we analyze companies in the future.

Answer 1

Ratio analysis is used in determination of the quantitative ratios in respect to performance of the company and help it analyse with respect to the ratios of the Other companies and it will be helpful in decision making about the performance of the company and respected industry.

Ratio analysis will also be useful in making investment related decision and it will also help in estimation of financial problems in advance.

Limitations related to ratio analysis will be as follows-

A. Ratio analysis is just quantitative method and it does not discount qualitative effects

B. Ratio analysis method is old and traditional method and it is a historical cost based approach

C. Ratio analysis will not offer any kind of estimate about the future performance of the company and it is just reflection of the past performance of the company.

D. Ratio analysis is based upon the balance sheet and the financial statements of the company which are often misrepresented.

I believe that in future,technology will be helpful in analysing the company in a better way because it will not Just provide the the historical analysis but it will also determine the future performance and use of the predictive analysis and it will also try to discount the real time analysis and it will also helpful in being free from any kinds of prejudice and bias and it will offer with the best possible analysis with lot of qualitative and quantitative approach.