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A Short History of Financial Ratio Analysis.

James O. Horrigan
The Accounting Review 1968 43(2), 284-294
In this article, the author focuses on the use of accounting data by accountants, particularly on the use of financial ratio analysis, followed from its early origins to the present time. Only the broad outline of this development is presented and the discussions is centered upon general analytical approaches or individuals. According to the author the first causes of financial statement analysis can be traced back to the last stages of America's drive to industrial maturity in the last half of the nineteenth century. As the management of enterprises in the various industrial sectors transferred from the enterprising capitalists to the professional manager and as the financial sector became a more predominate force in the economy, the need for financial statements increased accordingly. Although there was much overlap, the development paths of ratio analysis for creditor purposes and for managerial purposes were different. After the turn of the century, some important developments in ratio analysis occurred during the period prior to and during World War I.

Some Empirical Bases of Financial Ratio Analysis.

James O. Horrigan
The Accounting Review 1965 40(3), 558-568
The article discusses about some empirical bases of financial ratio analysis. Their statistical nature, as described in this article, suggests that they may not be so simple device as has been assumed but a more precise and larger body of knowledge about ratios will help surmount this difficulty. It would be extremely useful to explore the question of the predictive ability of financial ratios further. A sharper determination of their predictive ability should be possible because computers will allow for a greater usage of non-aggregate data and more sophisticated statistical techniques. Also, the development of funds flow ratios should be promising in this regard. An efficient predictor of financial difficulties would be a valuable device for screening out undesirable investments; indeed, it would be a useful device for selecting investments if one were interested in selling short. However, there is even a more fundamental reason for determining the utility of financial ratios. It is inconceivable that accounting data can be analyzed without transforming it into ratios, in one way or another; and thus, a justification of financial ratios would also be an important justification of financial accounting.