Knowledge that Transforms

ratios with a specific occurrence or condition has not been quantitatively defined until very recently.In recent years several articles have reported scien tific ratio analysis research.William H. Beaver's study of firms during 1954-64 found that some ratios predicted failure 2 up to five years in advance.Edvard Altman introduced multi ple discriminant analysis as a statistical technique in finan cial ratio research and found five ratios which reliably pre-3 dieted bankruptcy up to two years prior to its occurrence.In his 1969 unpublished dissertation, David Ewert isolated 4 three ratios as good predictors of trade credit quality.The need for empirical verification of priori beliefs is being recognized by scholars, and scientific research of ratio analy sis is being undertaken.This dissertation will report the results of a study attempting to improve the empirical foundation for a theory of ratio analysis and to answer the question, is ratio analysis of small business financial state ments useful in predicting the failure of a small business? 2