Distributions of Financial Accounting Ratios: Some Empirical Evidence

Abstract

R ECENT application of advanced statistical techniques to the traditional financial ratio analysis of companies has raised some question concerning the usefulness of these ratios for persons external to the firm [Altman, 1968; Beaver, 1968; Beaver, 1967; Deakin, 1972; Manak and Huefner, 1972; Horrigan, 1967; O'Connor, 1973]. O'Connor's findings are of particular interest since he found that financial ratios provided little or no assistance in the determination of future rate of return rankings [O'Connor, 1973]. Most of these studies have employed parametric statistical tools whose validity is somewhat dependent upon the nature of the underlying distribution of the data that is input to the model.