Skip to Main Content
Economic and Business Forecasting: Analyzing and Interpreting Econometric Results
book

Economic and Business Forecasting: Analyzing and Interpreting Econometric Results

by John Silvia, Azhar Iqbal, Kaylyn Swankoski, Sarah Watt, Sam Bullard
March 2014
Beginner to intermediate content levelBeginner to intermediate
400 pages
11h 35m
English
Wiley
Content preview from Economic and Business Forecasting: Analyzing and Interpreting Econometric Results

CHAPTER 3

Financial Ratios

For business leaders and decision makers, financial ratios are indicators of financial performance as well as part of a broader financial and economic framework. Utilizing financial ratios within that framework provides business leaders with a context for making well-informed decisions about their firm and the economy in general.

Financial ratios serve several purposes. They can be targets that can trigger an action, such as an investment decision, or act as measures of financial performance for a firm, industry, or country.

It is important to note that a financial ratio describes what happened but not why it happened. When looking at companies, an analyst compares financial ratios of one company to its competitors to understand the underlying causes of divergence between firms and the industry. The same can be true when a decision maker evaluates a country's financial position.

When using a financial ratio, an analyst should decipher the numerator and the denominator to assess what the ratio is attempting to measure and how to interpret the results. Financial ratios enable a decision maker to determine past performance, assess current performance, and gain insights regarding future success.

Generally speaking, calculating ratios can be the easy part of the task. The real challenge is extracting the underlying meaning of the ratios. An analyst must establish a methodology to assess the direction, stability, and outlook for the trend in the data that makes ...

Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
and much more.
Start your free trial

You might also like

Handbook of Economic Forecasting

Handbook of Economic Forecasting

Graham Elliott, Allan Timmermann
Handbook of Economic Forecasting

Handbook of Economic Forecasting

Graham Elliott, Allan Timmermann
Rethinking Valuation and Pricing Models

Rethinking Valuation and Pricing Models

Carsten Wehn, Christian Hoppe, Greg N. Gregoriou

Publisher Resources

ISBN: 9781118497098Purchase bookDownloads