Discuss at least three potential issues in utilizing ratio analysis that you would share with your colleague.

Business & Finance homework help| Business & Finance homework help

1. Information Gaps: Ratio analysis does not always provide a full picture of an organization’s performance due to the possibility of incomplete data or certain key information being omitted. It is crucial to address information gaps before you rely solely upon ratios in decision-making.
2. Reliability. Because ratios are based upon historical trade data they can not represent future performance. Organizations should be careful when using ratio analysis results and consider market volatility in making decisions.
3. Comparative Difficulties. It is sometimes difficult to compare the ratios of different companies because their accounting systems may differ or be incompatible in certain cases. Organizations should also use comparative analysis methods to help them make more informed decisions when it comes time to partner with companies or invest in new ones.

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