METHODOLOGICAL IMPLICATIONS OF NON‐NORMALLY DISTRIBUTED FINANCIAL RATIOS

Paul Barnes*

*Corresponding author for this work

Research output: Contribution to journalArticle

80 Citations (Scopus)

Abstract

Empirical studies have shown distributions of financial ratios are skewed. An explanation for this is given and it is argued that in such circumstances comparison of a fmancial ratio with some norm (e.g. industry average) is likely to misinform. It is also shown that where financial ratios are used as inputs to statistical models normality is irrelevant but a method of transformation into a normal distribution is provided whereby original interrelationships are preserved. Finally, because of the inadequacies of financial ratios, it is shown how regression analysis may be used in financial statement analysis.

Original languageEnglish
Pages (from-to)51-62
Number of pages12
JournalJournal of Business Finance & Accounting
Volume9
Issue number1
DOIs
Publication statusPublished - 1982

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