Back
 AJIBM  Vol.8 No.9 , September 2018
Financial Reporting: Long-Term Change of Financial Ratios
Abstract: Financial ratios are constructed mathematically as a ratio of numerator and denominator taken from financial statements (income statement or balance sheet). They are useful indicators of financial performance of a firm. However, changes in a particular ratio are difficult to interpret, because they can be related to changes in the numerator, the denominator, or both. Therefore, each change needs an interpretation of its own. The objective of the study is to analyze what kinds of roles have changes in the numerator and the denominator played in the long-term change of a set of financial ratios. The set of ratios consists of seven ratios reflecting profitability and its determinants, liquidity, and long-term solvency. The changes of these ratios are analyzed using the trends of the ratio components for a ten-year period in a sample of 9160 active and 81 bankrupt Finnish firms.
Cite this paper: Laitinen, E. (2018) Financial Reporting: Long-Term Change of Financial Ratios. American Journal of Industrial and Business Management, 8, 1893-1927. doi: 10.4236/ajibm.2018.89128.
References

[1]   Horrigan, J.O. (1968) A Short History of Financial Ratio Analysis. The Accounting Review, 43, 284-294.

[2]   Gilman, S. (1925) Analyzing Financial Statements. The Ronald Press Company, New York.

[3]   Whittington, G. (1980) Some Basic Properties of Accounting Ratios. Journal of Business Finance and Accounting, 7, 219-232.
https://doi.org/10.1111/j.1468-5957.1980.tb00738.x

[4]   Barnes, P. (1987) The Analysis and Use of financial Ratios: A Review Article. Journal of Business Finance & Accounting, 14, 446-461.
https://doi.org/10.1111/j.1468-5957.1987.tb00106.x

[5]   Tippett, M. and Whittington, G. (1995) An Empirical Evaluation of an Induced Theory of Financial Ratios. Accounting and Business Research, 25, 208-222.
https://doi.org/10.1080/00014788.1995.9729943

[6]   Whittington, G. and Tippett, M. (1999) The Components of Accounting Ratios as Co-Integrated Variables. Journal of Business Finance and Accounting, 26, 1245-1273.
https://doi.org/10.1111/1468-5957.00296

[7]   Ioannides, C., Peel, D. and Peel, M. (2003) The Time Series Properties of Financial Ratios: Lev Revisited. Journal of Business Finance and Accounting, 30, 699-714.
https://doi.org/10.1111/1468-5957.05201

[8]   Peel, D., Peel, M. and Venetis, I. (2004) Further Empirical Analysis of the Time Series Properties of Financial Ratios Based on a Panel Data Approach. Applied Financial Economics, 14, 155-163.
https://doi.org/10.1080/0960310042000187342

[9]   McLeay, S. and Stevenson, M. (2009) Modelling the Longitudinal Properties of Financial Ratios. Applied Financial Economics, 19, 305-318.
https://doi.org/10.1080/09603100802167270

[10]   Lev, B. and Sunder, S. (1979) Methodological Issues in the Use of Financial Ratios. Journal of Accounting and Economics, 1, 187-210.
https://doi.org/10.1016/0165-4101(79)90007-7

[11]   Trigueiros, D. (1995) Accounting Identities and the Distribution of Ratios. British Accounting Review, 27, 109-126.
https://doi.org/10.1006/bare.1994.0006

[12]   Balcaen, S. and Ooghe, H. (2006) 35 Years of Studies on Business Failure: An Overview of the Classic Statistical Methodologies and Their Related Problems. The British Accounting Review, 38, 63-93.
https://doi.org/10.1016/j.bar.2005.09.001

[13]   Bellovary, J.L., Giacomino, D.E. and Akers, M.D. (2007) A Review of Bankruptcy Prediction Studies: 1930 to Present. Journal of Financial Education, 1, 3-41.

[14]   Horrigan, J.O. (1965) Some Empirical Bases of Financial Ratio Analysis. The Accounting Review, 40, 558-568.

[15]   Beaver, W.H. (1966) Financial Ratios as Predictors of Failure, Empirical Research in Accounting, Selected Studies. Journal of Accounting Research, 4, 71-111.
https://doi.org/10.2307/2490171

[16]   Dang, C., Li, Z. and Yang, C. (2018) Measuring Firm Size in Empirical Corporate Finance. Journal of Banking & Finance, 86, 159-176.
https://doi.org/10.1016/j.jbankfin.2017.09.006

[17]   Altman E.I. (1968) Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy. The Journal of Finance, 23, 589-609.
https://doi.org/10.1111/j.1540-6261.1968.tb00843.x

[18]   Altman, E.I. (1983) Corporate Financial Distress. A Complete Guide to Predicting, Avoiding, and Dealing with Bankruptcy. Wiley Interscience. John Wiley and Sons.

 
 
Top