Financial ratio patterns in Indian manufacturing companies: a multivariate analysis

Abstract

Financial ratios are most frequently and widely used in practice to assess a firm's financial performance and condition. Over past several years, researchers have, however, subjected financial ratios to empirical analysis to find their other uses. The research focus in empirical studies has been mostly on ascertaining the predictive power of financial ratios. The predictive power of financial ratios has been investigated in the following areas: (a) corporate bankruptcy/sickness by Altman (1968, 1984), Beaver (1966), Blum (1974), Lincoln (1984), Ohlson (1980) and Wilcox (1973) in the U.S.A., and Gupta (1983), Kaveri (1980) and Yadav (1986) in India; (b) bond ratings by Horrigan (1966), Pinches and Mingo (1973), and Pogue and Soldofsky (1969); (c) acquisition/merger targets by Dietrich and Sorensen (1984), Rege (1984), Simkowitz and Monroe (1971), and Stevens (1973); and (d) relationship of financial ratios to industry targets by Frecka and Lee (1983) and Lev (1969). In these and other related studies a large number of ratios have been reported as important.