Ratio Analysis Discussion

Discussion Prompt

Overview:

Please watch this video on limitations of Ratio Analysis:

Instructions:

After watching both videos, please answer the following questions:

1. In the video, Jim walks through several key limitations in the areas of reliability, comparability, relying on only one data source, and using information based in the past. Which limitation do you feel is the most worrisome? What might you do to compensate for the limitation you identified?
2. Outside of the four key areas of limitations, Jim also explores a number of key elements that ratios arent able to convey. What characteristics of a firm would you most want to know about if you were to invest that you would not be able to glean from ratios? How would you go about gathering that information if you cannot get it through financial statements and ratio analysis?

(Please do not use any outside sources to complete this order)