The main advantage of ratio analysis is......

The correct answer is Option (1) → Enabling SWOT analysis

Ratio analysis relates items of the financial statements to one another so that profitability, liquidity, solvency and efficiency can be judged. Ratios explain the changes in the business and so help management see its strengths, weaknesses, opportunities and threats. Enabling SWOT analysis is one of the advantages listed for ratio analysis.

Option (2) Window dressing — Incorrect. Window dressing means presenting the accounts so that they look better than they are. It weakens ratio analysis, because ratios worked out from dressed-up figures mislead.

Option (3) Ignoring price level changes — Incorrect. Accounts are kept in money of different years, so ratios ignore changes in the value of money. That is a limitation, not an advantage.

Option (4) Forecasting — Incorrect. Forecasting future trends only from past figures is not reliable, since proper forecasting needs non-financial factors too. The book lists forecasting among the limitations of ratio analysis.