Although ratios are very useful there are also a few limitations.

• They are based on past data and therefore may not be a true reflection of the business's current performance.

• Financial records may have been manipulated and therefore the ratios will be based on potentially misleading information

• Ratios do not consider qualitative factors

• A ratio can indicate that there is a problem in a business but does not directly identify the cause of the problem or solution.

• Interfirm comparissons can be difficult as not all firms report their performance in the same way or generate their accounts in the same way.

Ratios only report on the financial performacne at a set point in time; the statement of financial position is a snapshot of the business at a point in time. At other times of the year the picture may be different.