Timo Salmi and Teppo Martikainen

A Review of the Theoretical and Empirical Basis of Financial Ratio
Analysis

Published in the Finnish Journal of Business Economics 4/94
Runeberginkatu 14-16
FIN-00100 Helsinki
Finland

We are grateful to professor Eero Kasanen, the secretary of the
Finnish Journal of Business Economics, for the permission to
reproduce this review article in the electronic format at the Garbo
archives of the University of Vaasa, Finland.

CONTENTS

Abstract
1. Introduction
2. Basic Properties of Ratios
   2.1. Functional Form of Financial Ratios
   2.2. Distributional Characteristics of Financial Ratios
   2.3. Classification of Financial Ratios
        2.3.1. Pragmatical Empiricism
        2.3.2. Deductive Approach
        2.3.3. Inductive Approach
        2.3.4. Confirmatory Approach
3. Measurement of Profitability and Financial Ratios
   3.1. ARR vs IRR
   3.2. Estimating the IRR from Financial Statements
   3.3. Estimating the IRR from the Cash Recovery Rate
4. Conclusions
REFERENCES

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Prof. Timo Salmi      Co-moderator of comp.archives.msdos.announce
Moderating at garbo.uwasa.fi anonymous FTP archives  193.166.120.5
Faculty of Accounting & Industrial Management; University of Vaasa
Internet: ts@uwasa.fi   BBS +(358)-61-3170972; FIN-65101,  Finland
