Description
The analysis of financial statements through ratios is a powerful business diagnostic tool that has been used since the last third of the 19th century. At the time it was developed, statistical analysis was in its infancy, and the theory of measurement scales, which determines the valid mathematical and statistical operations on a ratio, was not even born. Financial ratios, therefore, were never intended to be used as variables in statistical analysis, but rather to analyze individual companies.
Despite this, from the last third of the 20th century onwards ratios began to be used extensively in statistical analysis, although there were serious problems of asymmetry, non-linearity and outliers, among others, of which there was only partial awareness and to which only partial and ad hoc solutions were proposed.
This book presents a comprehensive approach to the statistical analysis of financial ratios called compositional data methodology, which solves the aforementioned problems and is adaptable to any statistical technique that analyzes financial ratios, in isolation or in the company of other non-financial variables.