Limitations of Financial Ratio Analysis As the background paper, Financial Ratio Analysis, explains, a pervasive weakness of financial ratios is that they do not permit managers and others to assess the long-run sustainability of a business’ operations within a society.

a. Develop a ratio that a business might use to measure the impact of its operations on:

• The communities in which it is located, or the customers that use its products,

• The natural environment, or

• The health and safety of its employees

b. Provide the definition of the ratio, its proper interpretation, and the limitations on its usefulness for its intended purpose.