TITLE:
Financial Reporting: Long-Term Change of Financial Ratios
AUTHORS:
Erkki K. Laitinen
KEYWORDS:
Financial Ratios, Ratio Change, Trend Analysis, Financial Statement Analysis, Ratio Interpretation, Finnish Firms, Bankrupt Firms
JOURNAL NAME:
American Journal of Industrial and Business Management,
Vol.8 No.9,
September
4,
2018
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.