Which of the following is not a limitation of Ratio Analysis? (A) Com…

Which of the following is not a limitation of Ratio Analysis?

(A) Comparative Analysis is possible.
(B) Price-level changes are ignored.
(C) Problem areas may be identified.
(D) Variations in Accounting Practices.
(E) Enables SWOT Analysis.

Choose the correct answer from the options given below :

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → (A), (C) and (E) only

The three items in the answer are advantages of ratio analysis; the other two are its limitations.

(A) Comparative Analysis is possible. — not a limitation: ratios help in comparing firms and years, an advantage.

(B) Price-level changes are ignored. — a limitation: ratios are based on historical figures and ignore changes in prices.

(C) Problem areas may be identified. — not a limitation: identifying problem areas is an advantage.

(D) Variations in Accounting Practices. — a limitation: different accounting methods make ratios of firms hard to compare.

(E) Enables SWOT Analysis. — not a limitation: it is an advantage of ratio analysis.

NCERT (2026-27 edition):
Terms Introduced in the Chapter – “… Advantages of Ratio Analysis: Ratio analysis offers many advantages including enabling financial statement analysis, helping understand efficacy of decisions, simplifying complex figures and establish relationships, being helpful in comparative analysis, identification of problem areas, enables SWOT analysis, and allows various comparisons.”

NCERT (2026-27 edition):
Terms Introduced in the Chapter – “… Limitations of Ratio Analysis: There are many limitations of ratio analysis. Few are based because of the basic limitations of the accounting data on which it is based. In the first set are included factors like Historical Analysis, Ignores Price-level Changes, Ignore Qualitative or Non-monetary Aspects, Limitations of Accounting Data, Variations in Accounting Practices, and Forecasting.”