Paper 2 · Ratio Analysis
A limitation of ratio analysis is that it
Arequires the company to be listed on a stock exchange
Bmeasures only the number of employees engaged
Crelies on historical, possibly manipulated figures
Dcannot be applied to a manufacturing business
Explanation: Ratios are only as good as the accounts they come from, and those accounts describe a period that has already ended and may themselves have been window dressed. They also need a comparable benchmark, which is hard to find where firms differ in method or in accounting policy.
Derived from ZIMSEC Business Enterprise Skills Paper 2, Specimen Paper, Q5