What are the limitations of financial ratios?
An example of an AI chatbot conversation about the limitations of financial ratios.
What are the limitations of financial ratios?
Financial ratios can be misleading due to factors like accounting practices, market conditions, and lack of context.
Can you give me an example of how accounting practices affect ratios?
Sure! Different companies may use different methods for inventory valuation, which can significantly impact their profitability ratios.
What about market conditions? How do they play a role?
Market conditions can affect ratios as they may not reflect the current economic environment, leading to poor decision-making.
Are there any alternatives to financial ratios for analysis?
Yes, alternatives include cash flow analysis, trend analysis, and economic value added (EVA) metrics.
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