Value and Limitations of Ratio Analysis Cheat Sheet

- They are used because they are easy to calculate, SIMPLE.
- They can be carried out very quickly
- Ideal for compar­isons
- decision making because they highlight strengths and weaknesses in the organi­zation

why?
<sup>- Keep shareh­olders happy
- Find investors
- Diffic­ulties lead to worst case scenario
- Less taxes
- Selling the business</sup>
how?
^{Manipu­lating Sales, Costs and deprec­iation, Extrao­rdinary items (goodw­ill), Bad debts, Changing asset values, Boosting liquidity, Current assets and liabil­itites}

- Be careful with compar­isons because comparing the same company over time means assuming the company stays the same; and this ain't always the case. Interfirm compar­isons need to be made carefully too because the nature of the business comes into play, size, etc.
- The balance sheet may not be repres­ent­ative of the busine­ss's circum­stances through the whole year.
- Qualit­ative inform­ation ignored
- Accuracy of data (infla­tion, window dressed)