The empirical results show that empirically-based classifications
are not fully equivalent to the a priori classification. The following
factors are found: solvency, profitability, efficiency, and dynamic
liquidity. The empirical results are based both on the value- and
equal-weighted indices of the ratios. Classification patterns are
developed using variables (indices) both in the level and in the
first-difference form. The use of the first differences of ratios
becomes necessary because of the clear positive or negative trend
in the time series. The use of first differences of ratios makes it
also possible to overcome the open and quite serious problem
concerning the role of constant term in financial ratio analysis.
Further, empirical results show that different aggregation
methods lead to different results. The theoretically better value-
weighted indices (in the first-difference form) give more accurate
and intepretative empirical results. Factor patterns based on
value-weighted variables in the first difference form display also
very clear time series stability. This result confirms the great
importance of aggregation method in ratio analysis. Finally, some
demonstrations how to use financial ratios in macro-economic
analysis are presented.
Key words: Financial ratio analysis, classification of financial
ratios, stability of financial ratios, aggregation of financial ratios,
factor analysis, transformation analysis
(Acta Wasaensia, No. 21 (1985), 74 p.)