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The Analysis and Use of Financial Ratios: A Review Article
1987, Journal of Business Finance & Accounting
Financial ratios are used for all kinds of purposes. These include the assessment of the ability of a firm to pay its debts, the evaluation of business and managerial success and even the statutory regulation of a firm's performance. Not surprisingly they become norms and actually affect performance.' The traditional textbooks of financial analysis also emphasise the need for a firm to use industry-wide averages as targets , and there is evidence that firms do adjust their financial ratios to such targets.* Whittington (1980) identified two principal uses of financial ratios. The traditional, normative use of the measurement of a firm's ratio compared with a standard, and the positive use in estimating empirical relationships, usually for predictive purposes. The former dates back to the late nineteenth century and the increase in US bank credit given as a result of the Civil War when current and non-current items were segregated and the ratio of current assets to current liabilities was developed . From then the use of ratios both for credit purposes and managerial analysis, focusing on profitability measures soon began. Around 1919 the du Pont Company began to use its famous ratio 'triangle' system to evaluate its operating results, underpinning the modern interfirm comparison scheme introduced in the UK by the British Institute of Management and the British Productivity Council in 1959.
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Journal of Business Finance & Accounting, 1977
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Journal of Business Finance & Accounting, 1987
International Journal of Management Excellence
This study was conducted to analyze the relationship between several chosen financial ratios and the financial performance of companies. Chosen financial indicators were Current Ratio, EPS, Firm size, Leverage Ratio and BV/MV Ratio. Financial performance of the companies was assessed through growth of the net profit margin. Ten companies which were registered in Colombo Stock Exchange which were categorized as diversified holdings were chosen as the sample. Financial data from 2013-2018 were considered for this study. A panel data analysis was used to determine the relationships between the independent variables and the dependent variables with given consideration to time series analysis and cross sectional analysis. According to the results of the study only current ratio, leverage and the firm size had significant relationships with the financial performance of the company. Current ratio and firm size positively impacted the company’s profitability, where as leverage impacted nega...
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The current business environment has forced business units to devise innovative means and mechanisms so as to stay competitive in the market. This necessitates the need for constantly evaluating their performance measures. Business units have identified several measures which depict the performance yet ambiguities remain with respect to what is appropriate measure for performance measurement. Ratio analysis is one such measure which business units have been using for sufficient period of time. Yet there exists certain points of consideration which form the basis for this paper and their convergence into research question namely (a) What constitutes ratio analysis and (b) Which of the component of ratio analysis, has the greatest contribution? While addressing these questions, HUDCO’s secondary data is used as a base. Ratio analysis is used to depict the measure of performance while descriptive statistics is used for data interpretation. Findings indicate that there is no single comp...
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