State TWO (2) limitations of ratios.

  • Ratios ignore qualitative aspects of the firm.
  • Ratios ignore the price level changes due to inflation.
  • There is no standard definition of the ratios.
  • Differences in accounting policies may make ratios difficult to compare from company to company.
  • Creative accounting practices may make ratios meaningless.

(Any 2 points @ 1 mark each = 2 marks)