Editing Financial analysis (section)

==Theoretical challenges==
[[Financial ratios]] face several theoretical challenges:

* They say little about the firm's prospects in an absolute sense.  Their insights about relative performance require a reference point from other time periods or similar firms.
* One ratio holds little meaning.  As indicators, ratios can be logically interpreted in at least two ways.{{Why|reason="Not mentioned in source and seems to be referring to two specific (well-known?) ways of interpreting ratios|date=August 2019}} One can partially overcome this problem by combining several related ratios to paint a more comprehensive picture of the firm's performance.
* Seasonal factors may prevent year-end values from being representative. A ratio's values may be distorted as account balances change from the beginning to the end of an accounting period. Use average values for such accounts whenever possible.
* Financial ratios are no more objective than the accounting methods employed. Changes in accounting [[Policy|policies]] or choices can yield drastically different ratio values.<ref>[http://www.netmba.com/finance/financial/ratios/ Financial Ratios<!-- Bot generated title -->]</ref>