The application of Financial Ratios in Prediction of Business Performance
J. M. Monyo
| Published On 01/07/1994

Abstract

Financial ratios have received a worldwide acceptance as effective tools for financial analysis. Although they are static measures of firms performance, empirical evidence has indicated that financial ratios signal increases in the probability of fa1lure for as much as five years prior to the failure of firms. The evidence therefore supports the contention that ratios do reflect the underlying events that affects solvency position and that they can be used as surrogates for the probability of fa1lure.

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