SWOT analysis of financial ratio analysis

Abstract

Financial ratio analysis is a method by which a business is assessed on the basis of data showing its financial position, and profitability. Although many people use it to make decisions, ratio analysis has some advantages and disadvantages that can affect its utility. The study analysed the good and bad aspects, prospects and dangers of ratio analysis by collecting information from various methods. The researchers spoke to 200 people, including accountants, finance students, teachers, investors, and business managers, through a questionnaire. He also studied books, reports, and other financial accounts. The study found ten main Strengths of ratio analysis, ten main Weaknesses, ten Opportunities and ten Threats, sorted based on people's consensus. The most important Strengths/advantages were simplifying complex financial data, comparing different companies, checking whether a business can pay its bills, measuring profits, and predicting the future. The main Weaknesses/ disadvantages were the use of outdated data, ignoring non-numerical factors, differences in accounting rules and tricks adopted to make financial figures look better. Opportunities include using new technologies such as artificial intelligence, forecasting future trends, reporting on social and environmental efforts, and comparing them to global standards. Threats include cybersecurity risks, economic problems, outdated technology, and misinterpretation of data. The study says that ratio analysis is still useful for financial management, but it can be further improved by using new technology, adopting clear reporting rules, and adding non-numerical information.