Ranking of Financial Ratios

Document Type

Article

Publication Date

12-2015

Publication Title

Journal of International Finance and Economics

DOI

10.18374/JIFE-15-4.6

ISSN

2378-864X

Abstract

Financial ratios have been used in various models to predict stock price since the 1960's (Altman, 1968). A few prominent models include the Piotroski score (Piotroski 2000), Fama-MacBeth regression (Fama & MacBeth, 1973), and the F-R model (Francis & Rowell,1978). Financial ratios used in these models vary from macroeconomic (for example, consumer inflation or the unemployment rate) to financial, such as the quick ratio. This paper is the first effort to rank these financial ratios. In this study, we apply a stepwise analysis of data from 2086 firms to show that out of 32 ratios, 6 ratios are most important for predicting firm performance.

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