Which aspect is considered in ratio analysis limitations?

In the context of ratio analysis, the aspect that is considered a limitation is the fact that ratios can be potentially misleading due to accounting policies. Different companies may use different accounting methods (such as depreciation methods, inventory valuation methods, or revenue recognition policies), which can affect the financial statements and, consequently, the derived ratios. This variability can lead to distorted comparisons between companies, making it difficult for analysts to draw accurate conclusions about financial health or performance.

When interpreting ratios, analysts need to be aware of the accounting principles applied by companies, as these choices can result in significant differences in reported figures. For example, two companies in the same industry might report vastly different profit margins due to distinct accounting policies, even if their operational performance is actually quite similar. Therefore, understanding these accounting policies is crucial for accurate ratio analysis and making informed decisions based on financial data.