Question

Describe 2 potential problems in using financial ratio analysis in financial management.

Answer 1

Ratios are one of the most important and widely used tool for financial analysis of company.ratio ananlys is use financial statement data of company to compare with peer companies and with past performance.

2 potential problem with ratio analysis is mention below:

1. Ratios analysis does not use qualitative and subjective factor. this method use only quantative factor only.

2. Ratios analysis does consider human capital of company which is most important factor.