Methodological Implications of Non-Normally Distributed Financial Ratios: A Reply

Article Abstract:

The idea that financial ratios are useful in a general overview of a firm's position is accepted. However, the premise is put forth that such ratios are often used as parts of econometric models. They are thought to be in accurate, not only in terms of the variance of the ratio, but also in terms of the variables behind the ratio. Also, use of ratios as size deflators is tarnished by the fact that ratios are imperfect size deflators. The use of ratios is imprecise and can lead to many numerical difficulties.

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Methodological Implications of Non-Normally Distributed Financial Ratios: A Comment

Article Abstract:

The use of financial ratios in spite of the non-normal distribution of such ratios is defended. Financial ratios are acknowledged to be inaccurate predicters of specific variables. Rather, ratios are useful in assessing the general shape and health of an organization. The fact that ratios are independent of company size allow comparisons between firms of different sizes. Perhaps regression analysis would be more useful in predicting specific variables. But such a use is not what financial ratios are for.

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The Consequences of Growth Maximisation and Expense Preference Policies of Managers: Evidence from UK Building Society

Article Abstract:

This study of United Kingdom Building Societies Assn. explores the ramifications of increased competition in the industry through the late 1970s and early 1980s. Redundant services offered by many societies are not economically optimal. Short term managerial decisions of expense preference and growth policies may be financially threatening over the long term. Several new types of mortgaging schemes are examined for profitability and financial soundness.

United Kingdom, Competition (Economics), Real estate investment, Real estate investments

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