Timo Salmi
Professor of Accounting and Business Finance
Ilkka Virtanen
Professor of Economic Mathematics and Operations Research
Paavo Yli-Olli
Professor of Accounting and Business Finance
ON THE CLASSIFICATION OF FINANCIAL RATIOS:
A Factor and Transformation Analysis of Accrual,
Cash Flow, and Market-Based Ratios
Abstract
Factor and transformation analysis are used to find stable
categories of financial ratios, and to test hypotheses concerning
accrual ratios, cash flow ratios, and market-based ratios. Six
stable factors are observed for Finnish data covering 1974-84.
Contrary to expectations market-based ratios disperse widely. Cash
flow ratios show strong internal cohesion and stability as expected.
The expected dichotomy of accrual ratios into dynamic performance
and static financial standing measures gets some support. The
conventional text-book classification into profitability, liquidity,
solvency, and turnover measures does not get direct support. Results
on the interdependence of firm sizes and security betas is
supported. Importance of measuring growth in financial statement
analysis is also supported.
KEYWORDS:
Financial ratios, financial statement analysis, classification of
financial ratios, stability of financial ratios, cash flows,
market-based ratios, profitability, operating leverage, defensive
interval measure, size and beta, growth, factor analysis,
transformation analysis.
Timo Salmi, Ilkka Virtanen and Paavo Yli-Olli (1990). On the
Classification on Financial Ratios. A Factor and transformation
analysis of accrual, cash flow, and market-based ratios. Acta
Wasaensia, No. 25., University of Vaasa, Finland. Also published on
the Word Wide Web as http://www.uwasa.fi/~ts/sera/
This publication is also downloadable as a single zipped file by ftp
as
tssera.zip
The next section (1. Introduction)
The contents section of Salmi, Virtanen and Yli-Olli (1990)
Other scientific publications by Timo Salmi in WWW format

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